'U^U, — 


I  , 


UC-NRLF 

ill  nil  mill  iim  III. 


B    M    57T    Oan 


I 


CONSTjyUTIONAL  CONVENTION 

1    107! 

BULLETIN  NO.  13 


Farm  Tenancy  and 
Rural  Credits 


Compiled  and  Published  by  the 

LEGISLATIVE  REFERENCE  BUREAU 

Springfield,  Illinois 


CO 

NO 

Q 


[Printed  by  authority  of  the  State  of  IlLnota.] 


y 


CONSTITUTIONAL  CONVENTION 


BULLETIN  No.  13 

Farm  Tenancy  and 
Rural  Credits 


'^^fi^ 


Compiled  and  Published  by  the 

LEGISLATIVE  REFERENCE  BUREAU 

Springfield.  Illinois 


[Printcfl  by   authority  of   the   State  of   Illinois.] 


ScHNEPP  &  Barnes,  Printers 

Springfield,  III. 

1919. 

28722—1500 


.,««UB=*HV-.aK.cu..u«.P.«-. 


LEGISLATIVE  REFERENCE  BUREAU. 


Governor  Fkaxk  O.  Lowdkx,  Cluiinnan. 
Senator  Edward  C.  Curtis,  Grant  Park, 
Senator  Richard  J.  Bakr,  joliet. 
Representativk  KinvARi)  J.  Smkjkal,  Cliicacjo. 
Represkntativk  William  V.  TIoladay.  Danville. 


E.  J.  Vf.rlie,  Secretary. 

W.  F.  Donn.  in  charge  collection  of  data  for 
eonsiitutinnal  com'cntinn. 


^:87J27 


TABLE  OF  CONTENTS 


I.     Summary 


Paof. 
.1083 


II.     Farm  tenancy  and  absentee  landlordism 1<^^5 

Farm  tenures  in  Illinois ^^^^ 

Absentee  landlordism  in  Illinois 1087 

III.     Systems  of  rural  credits:  first  mortgage  systems:  fed- 
eral farm  loans ^^^^ 

National  Farm  Loan  Associations 10^<^ 

Capital  stock  of  national  farm  loan  associations 1092 

Powers  of  national  farm  loan  associations .1092 

Farm  loans  made  through  national  farm  loan  associa- 
tions   ^^^^ 

Federal    Land    Banks    1<^^^ 

Farm  loans  made  by  the  federal  land  banks lO'-^l 

Terms  and  conditions  of  loans  made  by  federal  land 

banks  ^^•'^' 

Powers  of    federal   land  banks 1098 

Restrictions  on  federal   land  banks 1009 

Agents  of  federal  land  banks 1090 

Bonds  of  federal  land  banks 1 100 

Joint   Stock    Land   Banks '  100 

Differentiated    from   federal   land   banks UOO 

Farm  loans  made  by  the  joint  stock  land  banks UOl 

Amortization  Plan  of  the  Federal  System 1 103 

Amortization  methods  of  the  federal  land  banks  and 

the  joint  stock  land  banks 1 101 

Application  of  amortization  and  interest  payments 1105 

Investments   in   Farm   Loan   Bonds 1 10f> 

Provisions   safeguarding  investments 1106 

IV.    Other  first  mortgage  systems 1 1 10 

State  systems ^^^^ 

1 1 1  fi 
Foreign   systems ^^ ^" 


V. 


Systems  b.\sed  on  second  mortgages HIS 


TABLE  OF  CONTENTS 

Pack 
I.     Summary   

II.     Farm  tenancy  and  absentee  landlordism H>S5 

Farm  tenures  in  Illinois ^^^^ 

Absentee  landlordism  in  Illinois 1087 

III.     Systems  of  rural  credits:  first  mortg.vge  systems:  fed- 
eral FARM   LOANS l^"' 

National  Farm  Loan  Associations 10^^ 

Capital  stock  of  national  farm  loan  associations 1092 

Powers  of  national  farm  loan  associations 1093 

Farm  loans  made  through  national  farm  loan  associa- 
tions  ^^^^ 

Federal    Land   Banks    ^^^-^ 

Farm  loans  made  by  the  federal  land  banks 101)4 

Terms  and  conditions  of  loans  made  by  federal  land 

banks  l"-*^» 

Powers  of    federal  land  banks 1098 

Restrictions  on  federal  land  banks 1000 

Agents  of  federal  land  banks 1000 

Bonds  of  federal  land  banks 1  l<^f^ 

Joint   Stock   Land   Banks '  '<»<> 

Differentiated   from   federal  land   banks 1100 

Farm  loans  made  by  the  joint  stock  land  banks 1101 

Amortization  Plan  of  the  Federal  System 1103 

Amortization  methods  of  the  federal  land  banks  and 

the  joint  stock  land  banks 1  lOt 

Application  of  amortization  and  interest  payments 1105 

Investments  in   Farm   Loan   Bonds 1100 

Provisions   safeguarding  investments 1106 

IV.    Other  first  mortgage  systems 111^ 

State  systems 1^^^ 

1  1  1  P 

Foreign   systems ^  ^ ' " 


V. 


Systems  based  on  second  mortgages 1118 


"  "'"  '  CONTENTS— Concluded 


VI.  Systems  for  short-time  credits 1119 

VII.  Conclusions 1120 

Appendix — references   1131 


I.  SUMMARY. 


i 


The  provisions  of  the  present  state  constitution  directly  invol- 
ved in  the  problems  of  farm  tenancy  and  rural  credits  include: 

Art.     4,  Sec.  30.     Prohibiting  the  state  from  loaning  its  credit. 

Art.  11,  Sec.     5.     Forbidding  the  state  to  engage  in  banking. 

Art.     9,  Sec.     1.     Requiring  taxation  to  be  uniform. 

The  restrictions  as  to  banking  activities  of  the  state  and  the  loan- 
ing of  the  state's  credit  read  as  foUow^s : 

Art.  IV.  Sec.  20.  "The  state  shall  never  pay,  assume  or  become 
responsible  for  the  debts  or  liabilities  of,  or  in  any  manner  give,  loan 
or  extend  its  credit  to.  or  in  aid  of,  any  public  or  other  corpora- 
tion, association,  or  individual"  ;  and  : 

Art.  XI,  Sec.  5.  .  .  .  "nor  shall  the  state  own  or  be  lia- 
ble for  any  stock  in  any  corporation  or  joint  stock  company  or  associa- 
tion for  banking  purposes  now  created,  or  to  be  her(?after  created." 

These  limitations  have  prevented  the  organization  of  coopera- 
tive credit  associations  backed  by  the  credit  of  the  state.  Whatever 
organizations  have  been  created  under  the  authority  of  the  state  to 
meet  farm  loan  needs  in  Illinois  have  been  fostered  by  private  cap- 
ital. 

The  section  requiring  taxation  to  be  uniform  reads: 

.•\rt.  IX,  Sec.  1.  "The  General  Assembly  shall  provide  such 
revenue  as  may  be  needed  by  levying  a  tax.  by  valuation,  so  that  every 
person  and  corporation  shall  pay  a  tax  in  proportion  to  the  value  of 
his.  her  or  its  property  ...  in  such  manner  as  it  shall  from 
time  to  time  direct  by  general  law,  uniform  as  to  the  class  upon  which 
it  operates." 

This  limitation  stands  in  the  way  of  a  graduated  land  tax  on 
large  holdings,  a  system  of  taxation  that  has  been  advocated  as  a 
means  of  breaking  up  large  estates.  Those  who  favor  this 
method  of  taxation  urge  that  it  would  have  a  tendency  to  di.scourage 
the  holding  of  land  for  speculative  or  tenancy  purposes,  and  so  bring 
about  the  condition  they  desire — the  farming  land  of  the  state  owned 
by  those  who  cultivate  it. 

While  the  aim  of  a  graduated  tax  is  to  limit  the  amount  of  land 
that  can  l)e  held  by  a  non-operating  owner,  the  purpose  oi  farm  loan 
systems  is  to  furnish  positive  help  to  actual  farmers  in  securing  small 
farms. 

The  problem  in  rural  credits  is  how  to  develop  measures  that  will 
bring  together  the  person  who  has  money  to  lend  and  the  young  farmer 
who  wishes  to  establish  a  home.    The  credit  systems  f.o  far  developed 


••'*••    ••..:/•,../         1084 

have  generally  maae  provision  for  cooperative  farm  loan  associations 
and  land  banks,  supplementing  each  other  in  such  a  way  that  the  land 
banks  may  make  the  loans  to  the  borrowers  and  issue  their  bonds 
or  debentures  to  the  investors.  In  this  way  the  land  bank  serves  as 
an  intermediary  between  those  who  desire  to  borrow  and  those  who 
desire  to  lend  on  security  based  on  agricultural  land. 

The  various  systems  of  rural  credits  may  be  grouped  under  first 
mortgage  systems,  second  mortgage  systems  and  systems  for  short 
time  credits. 

The  federal  rural  credit  system  is  a  first  mortgage  system  ex- 
clusively ;  it  functions  through  the  instrumentality  of  the  national 
farm  loan  associations,  (or  in  their  absence  through  duly  authorized 
agents)  the  federal  land  banks  and  joint  stock  land  banks.  These 
various  agencies  are  organized  in  such  a  way  that  each  farmer  who 
becomes  a  member  of  a  farm  loan  association  may  receive  the  benefit 
of  the  combined  credit  of  all  its  members  to  the  extent  of  the  capital 
contributed  and  the  limited  liability  they  each  incur.  The  federal 
system  operates  exclusively  on  the  amortization  plan. 

The  federal  farm  loan  system  was  enacted  after  a  thorough  con- 
sideration of  the  various  foreign  systems  of  rural  credits,  and  the 
first  mortgage  plan  was  adopted  on  the  theory  that  the  land  mortgage 
bonds  must  be  carefully  secured  so  that  they  might  have  a  ready  sale 
throughout  the  country. 

It  has  been  urged  that  a  system  based  on  second  mortgages  could 
be  advantageously  developed  within  the  limits  of  a  single  state  where 
land  values  are  high  and  conditions  are  stable,  but  most  of  the  states 
so  far  have  duplicated  the  federal  plan,  although  it  is  urged  that  a 
large  field  for  second  mortgages  remains  unoccupied. 

A  system  of  short  time  credits  in  the  form  of  personal  credit 
cooperative  unions  has  been  proposed  in  order  to  supply  credit  for 
cooperative  marketing  organizations.  Cooperative  selling  systems  as 
well  as  plans  for  cooperative  buying  on  the  part  of  the  farmer  might 
be  developed  under  a  well  devised  system  of  personal  credit  unions 
under  the  supervision  of  the  state. 

Those  who  advocate  the  establishment  of  a  state  rural  credit  sys- 
tem claim  that  neither  the  federal  system  of  rural  credits  nor  the  private 
agencies  within  the  state  are  adequate  to  meet  the  situation  in  Illinois. 

On  the  one  hand  it  is  urged  that  the  state  system  could  be  operated 
to  advantage  in  competition  with  the  federal  system :  on  the  other  hand 
it  has  been  suggested  that  a  system  based  on  second  mortgages  would 
be  more  advantageous,  as  such  a  system  could  supplement  the  federal 
first  mortgage  system. 

How  may  the  farm  loan  needs  of  the  state  of  Illinois  be  most  ad- 
vantageously met?  What  are  the  relative  merits  of  the  several  rural 
credit  systems  so  far  developed,  and  does  the  experience  of  other  states 
and  other  countries  offer  any  suggestions  for  the  farm  loan  situation 
in  this  state  ? 

The  constitutional  provisions  and  legislative  measures  presented  in 
the  following  pages  may  furnish  some  data  toward  a  solution  of  the 
problems  under  consideration. 


1085 


II.  FARM  TENANCY  AND  ABSENTEE  LANDLORDISM. 


Farm  tenures  in  Illinois.  Ihe  proportion  of  farm  tenants  to 
farm  owners  has  shown  a  steady  increase  in  Illinois  for  some  forty 
years. 

The  United  States  census  for  1880  gave  some  attention  to  ques- 
tions of  land  ownership  and  farm  tenancy  in  the  different  states  and 
the  data  collected  at  that  time  gave  a  higher  percentage  of  tenants  in 
Illinois  than  in  any  other  northern  state.  Succeeding  census  reports 
left  Illinois  in  the  same  relative  position,  showing  a  higher  percentage 
of  tenant  farmers  than  any  other  state  in  this  section  of  the  United 
States. 

In  18S0  there  were  23  tenants  for  every  100  farmers  in  the  United 
States.  In  1010  this  percentage  had  increased  to  37.1  per  cent  for  the 
entire  countr}-. 

In  Illinois  the  proportion  of  tenants  reached  31.4  per  cent  in  1880, 
and  41.1  per  cent  in  1010.  At  the  present  time  conservative  estimates 
place  the  number  of  tenants  above  60  per  cent  for  the  entire  state; 
and  from  60  to  80  per  cent  for  the  rich  lands  in  the  corn  belt.  The  most 
conservative  estimates  indicate  that  more  than  half  the  farmers  of  Illi- 
nois do  not  own  the  farms  they  cultivate. 

When  the  proportion  of  tenant  farmers  exceeds  25  or  30  per  cent 
under  agricultural  conditions  in  the  northern  states,  there  is  occasion 
for  infjuiry.  Where  not  more  than  one-fourth  of  the  farmers  are  ten- 
ants, tenancy  may  merely  represent  the  stage  between  agricultural  labor 
and  farm  ownership.  In  many  cases  tenants  are  relatives  of  the  owner, 
or  the  owner  is  a  retired  farmer  who  rents  to  some  young  farmer  who 
is  accumulating  capital  in  order  to  purchase  the  farm  later  on.  Under 
these  conditions  the  average  time  spent  as  a  tenant  is  about  ten  years 
and  the  average  f)wncr  becomes  an  owner  at  about  3.")  years.' 

Where  tenancy  represents  merely  a  brief  transition  stage,  from 
which  the  agricidtural  laborer  or  young  farmer  becomes  the  owner  of 
the  land  he  cultivates  whenever  he  shows  normal  thrift  and  industry, 
there  seems  to  be  little  cause  for  apprehension :  but  where  tenancy  be- 
comes the  average  condition  of  farm  life,  the  interests  of  the  common- 
wealth are  involved.  Scientific  investigation  and  common  observation 
seem  to  unite  in  the  charge  that  tenant  farming  results  in  smaller  crops, 
in  declining  fertility  of  the  soil,  and  in  a  lower  standard  of  social  wel- 
fare, wherever  it  becomes  the  dominant  method  of  agriculture. 

\'arious  measures  have  been  proix)sed  to  meet  the  growing  prob- 
lem of  farm  tenancy.  Those  most  commonly  urged  include:  1.  A 
state  land  settlement  commission :  2.  A  graduated  land  tax  with  pro- 

'  See    reference    list    for   investigations    made    by    Dr.    B.    F.    Hlbbard    of    the 
University  of  Wisconsin,  and  by  Professor  G.  F.  Warrpn   of  Cornell  L'niversity. 


1086 

gressive  rates:  (a)  varying  according  to  size  of  holding,  and  (b)  with 
increased  rates  for  owners  who  do  not  operate  the  land ;  3.  Inheritance 
tax  with  progressive  rate  for  large  holdings  ;  4.  Equalization  of  taxes 
as  between  used  and  unused  land ;  5.  Definite  limit  on  amount  any  per- 
son may  own;  6.  Direct  purchase  and  sale  of  land  by  government;  7. 
Provision  for  alternative  investments. 

State  land  settlement  commissions  are  helping  solve  the  tenancy 
problem  in  a  number  of  states.  Measures  enacted  in  Maine,  Oregon, 
and  Arizona  are  typical  of  similar  measures  in  force  in  different  sec- 
tions of  the  country. 

The  constitutional  provision  that  taxation  shall  be  uniform  (Art. 
9,  Sec.  1)  at  the  present  time  stands  in  the  way  of  most  of  the  measures 
urged  for  graduated  taxes  on  large  land  holdings. 

Section  1  provides  that,  "The  General  Assembly  shall  provide  such 
revenue  as  may  be  needful  by  levying  a  tax  by  valuation,  so  that  every 
person  and  corporation  shall  pay  a  tax  in  proportion  to  the  value  of 
his,  her  or  its  property  ...  in  such  manner  as  it  shall  from  time 
to  time  direct  by  general  law,  uniform  as  to  the  class  upon  which  it 
operates." 

The  principle  of  progressive  taxation  is  well  established  in  this 
country  in  the  income  tax  and  the  inheritance  tax  laws.  It  has  been 
proposed  that  this  principle  be  applied  in  taxing  large  land  holdings. 

Advocates  of  this  plan  propose  that  the  smaller  farms  be  entirely 
exempt  from  any  graduated  tax  and  that  the  sur  tax  should  not  begin  to 
operate  on  any  holdings  not  in  excess  of  640  acres.  Others  have  sug- 
gested that  the  size  of  the  holdings  exempted  should  be  placed  as  low  as 
480  or  even  320  acres.  On  the  other  hand  it  has  been  urged  that  so 
small  a  holding  should  not  be  subject  to  the  tax,  as  the  general  nature 
of  agriculture  in  Illinois  requires  a  farm  varying  from  80  to  320  acres 
to  support  a  single  family. 

Others  have  proposed  that  a  sur  tax  of  20  per  cent  be  placed 
on  all  holdings  over  640  acres,  and  that  the  rate  of  progression  for 
farms  over  twice  that  amount  should  increase  rapidly  until  the  rate 
for  large  estates,  such  as  the  Scully  estate,  would  become  practically 
prohibitive.  Such  a  provision  Avould  undoubtedly  result  in  the  re- 
duction of  many  large  estates  into  small  sized  farms. 

A  further  proposition  has  been  made  to  increase  the  rates  for 
owners  of  large  holdings  who  do  not  operate  the  land.  It  is  urged 
that  such  a  classification,  based  on  the  nature  and  use  of  the  property, 
would  not  meet  the  constitutional  objections  urged  against  most  of  the 
proposals  for  breaking  up  large  holdings. 

It  has  also  been  urged  that  the  principle  of  the  graduated  land  tax 
be  extended  so  as  to  be  used  in  connection  with  the  inheritance  tax 
law.  Undoubtedly  many  owners  of  large  estates  would  elect  to  escape 
such  a  tax  by  disposing  of  part  of  their  land  in  advance.  If  the  rate 
of  progression  for  the  inheritance  tax  on  large  holdings  were  made 
higher  than  the  rate  for  the  graduated  tax  on  land  holdings  it  would 
result  in  giving  a  flexible  margin  to  holdings.  Under  this  proposal 
a  large  family,  cultivating  extensive  lands,  as  a  unit,  would  not  feel 


1087 

the  weight  of  the  graduated  tax  to  such  a  great  extent  uniil  the  trans- 
fer of  the  holdings  tlirough  inheritance. 

The  ecjuahzation  of  taxes  as  between  used  and  unused  land  has 
further  been  proposed.  This  method  of  taxation  is  also  prohibited 
at  the  present  time  by  the  Constitutional  restriction  as  to  uniformity. 

Placing  a  detinite  limit  on  the  amount  which  any  person  may  own 
is  another  proposal  sometimes  urged.  This  method  has  been  tried 
with  some  success  in  New  Zealand.  In  general,  the  plan  aims  at  the 
same  result  which  would  be  secured  under  a  graduated  tax  on  large 
holdings,  and  it  has  been  urged  that  a  graduated  tax  would  be  more 
in  keeping  with  the  spirit  of  our  laws  and  institutions. 

A  system  which  substitutes  direct  action  on  the  part  of  the  govern- 
ment in  the  purchase  and  sale  of  land  to  settlers  has  been  etifcctively 
tried  in  a  number  of  countries.  In  Xew  Zealand  this  system  has  been 
advantageously  operated  in  securing  the  settlement  of  the  land  by  small 
holders.  The  government  in  New  Zealand  buys  the  land  outright  anil 
sells  it  to  small  holders  at  the  price  paid.  Provision  is  made  for  a  low 
rate  of  interest  and  easy  terms  of  payment.  This  system  has  been  par- 
ticularly useful  in  cases  where  the  state  desires  to  break  up  large 
holdings  and  estates  into  small  farms  owned  and  operated  by  farmers 
living  on  the  land. 

California  has  provided  a  land  fund  through  which  the  state 
buys  land  in  large  holdings  and  resells  it  to  small  farmers  on  easy 
payments.  This  particular  state  found  this  method  advantageous  in 
the  development  of  its  small  fruit  farms. 

It  has  further  been  urged  that  provision  be  made  for  alternative 
investments,  so  that  funds  now  going  into  land  investments  might  be 
turned  into  other  channels. 

This  demand  has  been  partially  met  by  federal  and  state  farm 
loan  bonds.  The  hrst  mortgage  land  bonds  issued  under  the  authority 
of  the  Federal  Farm  Loan  Board,  have  opened  a  wide  held  to  investors 
who  have  heretofore  bought  land  as  the  only  safe  investment  with 
which  they  were  familiar.  Since  these  bonds  offer  perfect  security  and 
a  fair  rate  of  interest,  together  with  opiwrtunity  for  long  time  in- 
vestments, they  will  have  a  tendency  to  influence  many  investors 
against  the  accumulation  of  land.  On  the  one  hand  this  will  result  in 
land  being  offered  for  sale,  and  on  the  other  hand  it  will  withdraw  a 
large  grf)up  of  land  buvers.  (jiving  small  investors  such  alternative 
opportunities  to  invest  their  savings,  would  accordingly  open  a  large 
amount  of  land  to  actual  farmers. 

L'nless  some  positive  action  of  this  sort  is  brought  to  bear  u])on 
non-operating  holders  of  land,  the  price  of  land  in  Illinois  is  likely 
to  advance  far  beyond  the  value  of  its  producing  power.  Even  at  the 
present  time  the  effectiveness  of  a  farm  loan  system  in  meeting  the 
tenancy  problem  is  largely  discounted  by  the  high  cost  of  land. 


Absentee  landlordism  in  Illinois.  The  problem  of  absentee 
landlordism  has  been  aggravated  in  the  state  of  Illinois  by  a  number 
of  great  non-resident  holdings  like  the  Scully  estate. 


1088 

Measures  most  frequently  urged  to  meet  the  problems  of  absentee 
landlordism  include:  1.  Laws  prohibiting  the  ownership  of  land  by 
aliens;  2.  A  higher  tax  rate  for  non-resi dents. 

Laws  making  it  illegal  for  an  alien  to  own  land  within  a  state 
have  been  enacted  in  a  number  of  states.  Llowever,  such  laws  have 
usually  been  circumvented  by  the  acquisition  of  citizenship  papers  and 
fictitious  residence  in  this  country ;  such  aliens  becoming  naturalized 
simply  on  account  of  the  prohibition  against  alien  ownership  of  farm 
land.  There  is  the  further  difficulty  that  such  a  provision  might  be 
held  objectionable  under  the  federal  constitution. 

The  proposal  to  tax  citizens  at  different  rates  according  as  they 
are  resident  or  non-residents  within  the  state  might  also  be  objection- 
able under  the  federal  constitution  as  being  contrary  to  inter-state 
comity. 

The  purpose  of  both  of  these  proposals  is,  of  course,  to  break 
up  large  holdings  for  the  use  of  actual  farmers,  who  will  own  and 
operate  the  land  upon  which  they  live.  It  has  been  pointed  out  that 
this  purpose  could  be  just  as  readily  secured  under  a  graduated  land 
tax ;  and  that  a  classification  as  between  operators  and  non-operators 
of  agricultural  lands  could  be  made  by  any  state  without  being  ob- 
jectionable under  the  federal  constitution. 

Under  such  a  classification,  land  held  for  speculative  purposes 
or  large  holdings  held  for  occupation  by  tenants,  could  be  taxed  at  a 
higher  rate  than  land  which  is  operated  and  improved  by  the  owner. 


1080 


III.  SYSTEMS  OF  RURAL  CREDITS:     FIRST  MORTGAGE 
SYSTEMS:     FEDERAL  FARM  LOANS. 


Since  the  enactment  of  the  Federal  Farm  Loan  Act  July  IT,  1916, 
a  consiclcral)lc  number  of  National  Farm  Loan  Associations  have  been 
organized  within  this  State.  By  October  31,  1!»19.  a  total  of  1,7G8 
loans,  aggregating  $0.841,17.5.00  liad  been  placed  on  Illinois  farm  lands 
through  these  Federal  cooperative  associations.  The  total  for  the 
entire  United  States,  on  the  same  date  showed  103,673  separate  loans 
aggregating  $271,317,816.00.  The  total  number  of  loans  and  aggre- 
gate amounts  for  states  contiguous  to  Illinois  for  the  same  period  were 
as  follows:  Indiana  3.-140  loans  and  $8,234,700.00;  Michigan  2.S02 
loans  and  $o.O!)3.200.00 ;  Wisconsin  1,884  loans  and  $l,4r)r).S()().00 ; 
Minnesota  3.2r)(5  loans  and  $9,921,100.00:  Iowa  2.522  loans  and  $17.- 
766.350.00;  Missouri  2,682  loans  and  $7,223,050.00;  and  Kentucky 
1,442  loans  and  $3,691,200.00.  Contrasted  with  these  Delaware  had 
only  12  loans  in  all  aggregating  $24,500.00,  the  smallest  number  as 
well  as  the  smallest  aggregate  for  any  State,  while  Texas  had  the 
largest  number  of  loans  as  well  as  the  largest  aggregate  for  the  same 
period  amounting  to  10.643  loans  with  an  aggregate  of  $29,999,156.00. 

The  Joint  Stock  Land  Banks,  also  provided  for  in  the  Federal 
act  made  additional  farm  loans  amounting  to  $47,633,775.83  for  the 
entire  United  States.  Adding  this  amount  to  the  total  loans  made 
through  the  Farm  Loan  Associations  for  the  entire  country,  gives 
a  sum  total  of  $318,951,591.83  placed  on  farm  loans  under  the  Federal 
Farm  Loan  Board  in  a  period  slightly  more  than  three  years  since 
it  was  established. 

The  present  federal  farm  loan  act  is  distinctly  limited  to  first  mort- 
gage loans.  Such  loans  involve  little  risk  and  therefore  permit  a  low 
rate  of  interest  and  provide  a  safe  basis  for  the  issue  of  the  farm  loan 
bonds.  The  amortization  plan  of  the  federal  law  further  tends  to  lower 
the  amount  of  interest  actually  paid,  and  this  process  of  paying  olT  the 
indebtedness  by  installment  payments  of  a  fixed  amount,  which  in- 
cludes interest  and  a  part  of  the  princii)al,  throughout  a  period  of  years, 
thus  provides  a  regular  source  of  capital  for  the  payment  of  the  farm 
loan  bonds. 

Briefly  summarized,  the  purpose  of  the  federal  farm  loan  act  is  to 
provide  capital  for  agricultural  development  and  to  create  standard 
forms  of  investment  based  upon  farm  mortgages;  or  more  specifically, 
as  summarized  by  the  Federal  Farm  Loan  Board.  "To  lower  and  equal- 
ize interest  rates  on  first  mortgage  farm  loans ;  to  provide  long  term 
loans  with  the  privilege  of  repayment  in  installments  through  a  long 
or  short  period  of  years,  at  the  borrower's  option  ;  to  assemble  the  farm 


1090 

credits  of  the  nation,  to  be  used  as  security  for  money  to  be  employed 
in  farm  development ;  to  stimulate  cooperative  action  among  farmers ; 
to  make  it  easier  for  the  landless  to  get  land  ;  and  to  provide  safe  and 
sound  long-term  investments  for  the  thrifty." 

The  entire  system  of  farm  loans  under  the  Federal  Farm  Loan 
Board  involves  two  methods  of  cooperative  action :  first,  cooperative  as- 
sociations of  borrowers,  operating  by  means  of  the  farm  loan  associa- 
tions and  the  12  federal  land  banks  ;  second,  cooperative  associations  of 
lenders,  operating  through  the  joint  stock  land  banks. 


National  Farm  Loan  Associations. 

The  national  farm  loan  associations  are  organized  and  controlled 
by  the  borrowers :  each  is  made  up  of  10  or  more  farmers  and  it  is 
through  these  local  units  that  the  borrower  enters  into  the  benefits  of 
the  system.  These  cooperative  units  furnish  the  machinery  for  bor- 
rowing and  investing,  for  voting,  and  for  protection  against  loss. 

A  national  farm  loan  association  may  be  formed  by  persons  desir- 
ing to  borrow  money  on  farm  mortgage  security  by  entering  into  arti- 
cles of  association  under  the  farm  loan  act.  Membership  in  an  associ- 
ation is  limited  to  natural  persons  who  are  actual  farmers  and  who  are 
the  owners,  or  about  to  become  owners  of  farm  land.  This  includes 
prospective  farmers,  tenants,  or  farm  laborers  who  are  about  to  pur- 
chase land.  The  prospective  borrowers  hold  an  organization  meeting 
and  elect  from  their  members  a  board  of  five  or  more  directors,  and 
this  board  elects  a  loan  committee  of  three,  a  president,  vice  president, 
and  a  secretaiy-treasurer,  who  is  a  bonded  officer.  The  secretary -treas- 
urer may  or  may  not  be  a  member  of  the  association.  These  prospective 
borrowers,  10  or  more  in  number,  then  make  application  in  writing  to 
the  federal  land  bank  of  the  district  for  loans  to  the  aggregate  amount 
of  $20,000  and  for  a  charter  to  do  business.  They  must  sign  and  ac- 
knowledge articles  of  association  and  forward  them  to  the  federal  land 
bank.  The  federal  land  bank  then  sends  its  appraiser  to  inspect  the 
land  ofifered  as  security  for  the  loans  applied  for,  and,  if  satisfactory, 
the  loans  are  authorized  when  the  charter  is  granted  to  the  association. 
The  bank  then  advances  the  money  through  the  secretary-treasurer  of 
the  local  association.  In  the  application  signed  by  borrowers  each  must 
indicate  how  much  money  he  desires  and  must  list  the  value  of  the  land 
to  be  mortgaged  as  security ;  but  no  person  may  borrow  more  than 
$10,000  nor  less  than  $100,  and  in  no  case  may  the  loan  exceed  50  per 
cent  of  the  value  of  the  land  mortgaged,  and  "20  per  cent  of  the  value  of 
the  permanent  insured  improvements. 

Upon  the  granting  of  the  charter  the  individuals  signing  the  appli- 
cation become  a  body  corporate,  and  the  farm  loan  association  thus  or- 
ganized has  the  right  to  do  the  business  authorized  by  the  farm  loan 
act  and  to  have  succession  indefinitely.  When  once  organized  it  may 
take  in  new  members  from  time  to  time  and  thus  serve  an  entire  com- 
munity continuously. 


1091 

\\'hcne\or  any  national  farm  loan  association  desires  to  secure  a 
loan  on  first  mortgage  for  any  of  its  mcml)ers  from  the  federal  land 
bank  of  its  district,  it  is  required  to  subscribe  for  capital  stock  of  the 
land  bank  to  the  amount  of  5  per  cent  of  such  loan ;  this  subscription 
is  to  be  paid  in  cash  upon  the  granting  of  the  loan  by  the  land  bank. 
Such  ca])ital  stock  is  to  be  held  by  the  land  bank  as  collateral  security 
for  the  payment  of  the  loan,  but  any  dividends  accruing  and  payable 
on  such  caj^ital  slock  while  it  is  outstanding  are  to  be  paid  to  the  farm 
loan  association.  Such  stock  may  be  paid  otif  at  par  and  retired  in  the 
discretion  of  the  directors  of  the  association  and  with  the  ap])roval 
of  the  Federal  Farm  Loan  Board,  and  the  stock  must  be  paid  oft' 
and  retired  upon  full  payment  of  the  mortgage  loan.  In  such  case 
the  national  farm  loan  association  is  required  to  pay  off  at  par  and 
to  retire  the  corresponding  shares  of  its  stock  which  were  issued  when 
the  land  bank  stock  was  issued.  The  ca])ital  slock  of  the  federal  land 
bank  may  not  be  reduced  to  less  than  '>  per  cent  of  outstanding  farm 
loan  bonds  issued  by  it. 

Any  person  whcie  application  for  membership  is  accei)ted  by  a 
loan  association  is  entitled  to  borrow  when  funds  are  available  imless 
the  federal  land  bank  of  the  district  or  the  farm  loan  board  determine 
otherwise.  Any  borrower  may,  at  his  option,  pay  for  his  stocic  from 
the  proceeds  of  the  loan,  provided  the  total  amount  of  the  loan  does  not 
exceed  the  maximum  limit  of  $10,000.  Any  sum  thus  borrowed  from 
the  federal  land  bank  through  the  association  is  to  be  made  a  part  of  the 
face  of  the  loan  and  paid  off  in  amortization  payments. 

Subject  to  rules  and  regulations  prescribed  by  the  Federal  Farm 
Loan  Board,  any  loan  association  is  entitled  to  retain  a  commission  not 
exceeding  one-eighth  of  one  per  cent  semi-annually  from  each  interest 
payment  upon  the  unpaid  principal  of  any  loan  indorsed  by  it.  Any 
amounts  so  retained  as  commissions  are  to  be  deducted  from  dividends 
payable  to  the  federal  farm  loan  association  by  the  federal  land  bank. 
Any  loan  association  may  make  application  to  the  federal  land  bank  of 
the  district  for  loans  not  exceeding  in  the  aggregate  one- fourth  of  its 
total  stock  holdings  in  the  bank.  The  land  banks  have  the  j)ower  to 
make  such  loans  and  to  charge  interest  not  exceeding  (!  per  cent  per 
annum. 

Shareholders  of  every  loan  association  are  held  individually  liable, 
equally  and  ratably,  and  not  one  for  another,  to  the  extent  of  the  par 
value  of  the  stock  owned  by  them,  in  addition  to  the  amount  paid  in  and 
represented  by  their  shares. 

After  a  charter  has  lieen  granted,  any  natural  person  owning,  or 
about  to  own  qualified  land,  may  become  a  member  of  an  association 
upon  approval  of  the  directors  and  uj)on  subscribing  to  stock  to  the  ex- 
tent of  five  per  cent  of  his  proposed  loan. 

Whenever  an  ai)plication  for  a  mortgage  loan  is  made  to  a  loan 
association  it  must  be  referred  to  its  loan  committee.  This  committee 
examines  the  land,  makes  an  appraisal  and  a  detailed  written  report,  and 
no  loan  may  be  approved  by  the  directors  of  the  loan  association  unless 
the  committee's  report  is  favorable.  The  written  report  and  approval 
of  the  loan  committee  are  then  submitted  to  the  directors  of  the  land 


1092 

bank,  together  with  the  application  for  the  loan.  The  land  bank  is  re- 
quired to  refer  the  application  and  the  report  to  the  land  bank  appraiser 
for  investigation,  and  no  loan  may  be  made  by  the  bank  unless  the  writ- 
ten report  of  the  appraiser  is  favorable.  Land  bank  appraisers  are  re- 
quired to  make  such  examinations  and  appraisals  and  conduct  such  in- 
vestigations concerning  farm  loan  bonds,  and  first  mortgages  as  the 
Federal  Farm  Loan  Board  may  direct. 

Capital  stock  of  national  farm  loan  associations.  The  shares  in  na- 
tional farm  loan  associations  have  a  par  value  of  $5.00  each.  Each 
shareholder  is  entitled  to  one  vote  on  each  share  of  stock  held  by  him 
at  all  elections  of  directors  and  in  deciding  all  questions  at  meetings 
of  shareholders,  but  the  maximum  number  of  votes  which  may  be  cast 
by  any  one  shareholder  is  limited  to  20.  It  is  evident  that  this  limita- 
tion on  voting  power  places  all  members  who  borrow  more  than  $2,000 
on  an  equality  of  voting  strength,  regardless  of  any  larger  loans  which 
they  may  carry. 

Only  borrowers  on  farm  land  mortgages  are  permitted  to  be  mem- 
bers or  shareholders  in  the  loan  associations.  Every  applicant  for  a 
loan  must  apply  for  membership  and  subscribe  to  stock  in  the  associa- 
tion to  the  extent  of  5  per  cent  of  the  desired  loan,  and  this  subscrip- 
tion must  be  paid  in  cash  upon  the  granting  of  the  loan.  If  the  appli- 
cation for  membership  is  accepted,  the  loan  granted,  and  the  stock  paid 
for,  the  applicant  becomes  the  owner  of  one  $5  share  of  capital  stock 
in  the  loan  association  for  each  $100  of  the  face  of  his  loan  or  any 
major  fraction  thereof.  Upon  full  payment  of  the  loan  such  capital 
stock  is  retired  :  meanwhile  it  is  held  as  collateral  security  by  the  asso- 
ciation, but  the  borrower  receives  any  dividends  accruing  and  payable 
while  it  is  outstanding.  The  amount  of  capital  stock  is  to  be  increased 
by  the  association  from  time  to  time  for  the  purpose  of  securing  addi- 
tional loans  for  its  members  and  providing  for  the  issue  of  shares  to 
borrowers  in  accordance  with  the  provisions  of  the  act,  but  any  such  in- 
creases must  be  stated  in  the  quarterly  reports  to  the  Farm  Loan  Board. 

Pozuers  of  national  farm  loan  associations.  Every  national  farm 
loan  association  has  the  power  to  indorse  and  thereby  become  liable  for 
the  payment  of  mortgages  taken  from  its  shareholders  by  the  federal 
land  bank  of  its  district;  to  receive  funds  advanced  by  the  land  bank 
and  to  pay  over  such  funds  to  the  borrowers.  It  may  further  issue  cer- 
tificates against  deposits  of  current  funds  and  convertible  into  farm 
loan  bonds  when  presented  at  the  federal  land  bank  of  the  district  in  the 
amount  of  $25  or  any  multiple  thereof ;  such  deposits  when  received, 
are  forthwith  to  be  transmitted  to  the  land  bank  and  be  invested  by  it 
in  the  purchase  of  farm  loan  bonds  issued  by  a  federal  land  bank  or 
in  first  mortgages  under  the  act.  The  association  is  further  empower- 
ed to  own  such  property  as  may  be  required  for  the  transaction  of  its 
business. 

Farm  loans  made  through  national  farm  loan  associations.  The 
following  statement  compiled  from  data  supplied  by  the  Federal  Farm 
Loan  Bureau  shows  the  number  of  loans  made  by  the  Federal  land 
banks  through  the  national  farm  loan  associations  since  the  enact- 
ment of  the  federal  law,  and  up  to  October  31,  1919,  inclusive.    Totals 


1093 

arc  shown  for  each  separate  state,  for  each  of  the  twelve  federal  land 
bank  districts,  and  for  the  entire  United  States. 

Statement  shoicing  loans  in  the  taelvc  federal  land  bank  districts  from 
organization   to  October  31,  lOl'J. 

Total  loans. 

Springfield  No.  Amount. 

Maine    550  $1,187,300 

New  Hampshire   159  3:53.000 

Vermont    324  827.450 

.Massachusetts     622  I.SCG.ISS 

Rhode   Island    53  125.(150 

Connecticut     410  1,255,350 

New    York    1,409  4,327,990 

New  Jersey   244  810,550 

Total    3,771  $10,433,445 

Baltimore 

Pennsylvania    934  $2,441,200 

Virginia    2,484  6,608.250 

West    Virginia 642  1,172.150 

Maryland    216  682.200 

Delaware    12  24.500 

Total    4,288  $10,928,300 

Columbia 

North   Carolina    2,676  $4,737,800 

South   Carolina    1,683  4.542.040 

Georgia     1,008  2,625.885 

Florida     1,437  2,536,770 

Total     6,804  $14,442,495 

Louisville 

Tennessee     2.05S  $5.1 63.700 

Kentucky    1.442  3,691.200 

Indiana     2.440  8.234,700 

Ohio    565  1,810,500 

Total    6.505  $18,900,100 

yeic  Orleans 

Alabama   3,493  $5,892,070 

Louisiana     2,681  4,310.190 

Mississippi     6.595  8.465.670 

Total    12,769  $18,667,930 

St.  Louis 

Illinois     1.T6S  6.841.475 

Missouri    2,682  7.223.05O 

Arkansas    4.924  7.531.755 

Total    9.374  $21,596,280 

St.  Paul 

N    Dakota                             5.264  $15,912,900 

Minnesota     3.256  9.921.100 

Wisconsin     1.S84  4.4.'-.5.800 

Michigan     2,802  5,093.200 

Total    13,206  $35,383,000 


1094 

Loans  in  the  tivelve  'federal  land  bank  districts — Concluded. 

Total  loans. 

Omaha  No.  Amount. 

Iowa     2,522  $17,766,350 

Nebraska    2,559  10.770,390 

S.  Dakota  1,635  6,568,750 

Wyoming     455  1,026,200 

Total    7,171  $36,131,690 

Wichita 

Kansas    3,147  $11,101,500 

Oklahoma    2,638  5,266,900 

Colorado    2,445  5,714,600 

New  Mexico   1,881  2,878,900 

Total    10,111  $23,961,900 

Houston 

Texas     10,643  $29,999,156 

Total    10,643  $29,999,156 

Berkeley 

California     2,931  $9,588,700 

Utah    1,483  4,202,100 

Nevada    38  172,600 

Arizona    234  615.500 

Total    4,686  $14,578,900 

Spokaiie 

Idaho    2,517  $  7,178.645 

Montana    4,116  10,102,850 

Oregon    3.155  9.188.080 

Washington    4,556  9,825,045 

Total     14,344  $36,294,620 

Total  for  12  districts 103,672  $271,317,876 


Federal  Land  Banks. 

The  federal  farm  loan  system  is  essentially  a  farmer's  banking 
system,  and  the  law  contemplates  that  the  farmers  shall  eventually  own 
and  control  it.  The  borrowers  in  the  farm  loan  associations  will  ttnti- 
mately  become  the  entire  owners  of  the  federal  land  banks,  as  the  gov- 
ernment stock  and  the  stock  originally  subscribed  by  others  than  bor- 
rowers will  be  gradually  paid  oft  and  retired,  and  the  subscriptions 
made  by  farm  loan  associations,  will  supplant  the  advances  which  the 
government  made  in  the  beginnig,  in  order  to  establish  the  system  on  a 
firm  basis.  During  the  year  ending  October  31,  1919,  federal  land 
banks  refunded  $572,569  to  the  government,  thereby  reducing  the  gov- 
ernment holding  of  stock  to  $7,693,240. 

Farm  loans  made  by  the  federal  land  banks.  The  following  state- 
ment compiled  from  data  supplied  by  the  Federal  Farm  Loan  Bureau 
shows  the  total  number  of  federal  farm  loans  made  by  each  of  the 
twelve  federal  land  banks  in  their  respective  districts  from  date  of  or- 
ganization to  October  31,  1919,  inclusive. 


Ov 


•^ 


o 


13 


^ 

c 


s- 


1096 

•^  ^.  ■^  —  bi  ■:•  ~  -C  *.  —  f.  i>    l» 
C  *  *•  2.  '  •  'i  -"j  —  —  1^2    ;  '■• 


i-fflxu!5i-tcJi  —  —  o«om   10 

C^i  -"T  50  CD  ci  Ci  ?0  I-"  C  C-  ^  V         p> 


—^iSoox— Sx— m 

8'  33  ..-■ .-:  52  fj  —  1-  c:  x'  I;  O 
o»  -^  X  ;  -^  —  I-  -r  6  55  — 

©»  ^  :o  T*  ^i  -^  «  r^  to  »f5  :D  •» 
—  —  —  ©•e^W'TTOicj  —  1" 


t«3 -•  m  n  C  "T  00  <- I- t- I- »  yj 

I-  51  a  ei  Ti  »» M  «  I-  ■ij  —  »  o 

•V  n  ra  :f.  a  >f!  —  iti  a  X,  —  X  I  1- 

■>r  t-'  i-^  x'  lo  — '  lO  X  OS  2;  in  to  I  js 


inQicomoooiocDOO 
c<5w5«  — O-^-rxm-rSro 


—  —  t0ini-0»»«' 

t-<p  — 05^-  — T^C,    _      ^ 

xxo»  —  xinos  —  ^-rMoi: 
t»je*in!Dinx««o>i£ine»   iV 


)tO  —    I  Q 


1-0:0000— OitOXSM  00 

SI-  -^  -^  o  e*  >.T  ?:  »  T  X  <o  t- 

rte»Mi-irtcoc5in  —  XTi  M 

— '  — ' «  cc  4n  f '  x' fQ  -r  «  —'in  Q 


c»--5oaJx02£<inoo  I- 

V  O!  55  —  o  ■^  «  OS  X  eS  I-  I-  I  00 

O  I-  «  —  o'  ti  I-  os'  -r  ci  .-^  -^  I  l~ 

8  S  (^  S  'x  ^  ^  i  5  ^  ^  S  I S 

<o  a> »»'  3  X  m  I-  uj  uj  .-o  —  "I  I  «o* 

—  —  c>»3c»min>nrti«*>in  « 

■•» l5 


n  o  «  o  X  3  r- t- I- o  5s      a; 

o  1-cs  3  c.  o  I- -rio  00  X    10 

<o'  x'  o'  —  o  to  r:  »>  -r  —  t-  —      in 


"rintp-r-rOi-«  — o  — o      la 

S  o  in  »( >n  o  o  X  in  —  —  I-    1  o 
'■•'-3  2  OS  o>  x"  OS  —  -f  as"  o   '  X 


Ptoi-ooBeJOafcci-rmco 

•rininejO  —  inx  —  —  inm 
Ti  —  —      —  ei      el 

l^ii^ilSi5|!is 

aooot-:;-  .n o:i  — 

t;ino-incx---52;5«" 

M  CO  wi  00  «  X  0  lO  c& «  r**  r^ 

1! 

CiJ 


^  ^  ri  j::  Z -i  '•>  ^      o 


1096 

When  a  farmer  borrows  money  he  is  required  to  buy  stock  of  his 
local  association  equal  to  5  per  cent  of  his  loan.  This  stock  is  held  by 
the  local  loan  association  as  collateral  security  until  the  mortgage  is 
paid,  when  the  money  is  returned  to  him,  or  he  may  use  it  as  the  last 
payment  of  his  debt.  The  local  association  uses  the  money  which  the 
borrower  pays  for  his  stock  to  buy  stock  in  the  federal  land  bank ;  this 
is  done  to  increase  the  land  bank's  capital  in  order  that  it  may  make 
more  loans.  The  law  provides  for  the  automatic  increase  of  the  capital 
of  the  bank  because  each  local  farm  loan  association  must  buy  stock  in 
the  federal  land  bank  equal  to  5  per  cent  of  the  loans  it  procures  for 
its  members.  Now,  since  each  land  bank  is  permitted  to  lend  twenty 
times  its  capital  to  the  members  of  the  association,  it  will  be  seen  that 
the  loaning  capacity  of  the  bank  is  increased  twenty  thousand  for  each 
one  thousand  dollars  added  to  its  capital,  the  ratio  between  the  capital 
and  the  loaning  capacity  always  remaining  the  same.  Accordingly, 
there  is  no  limit  to  the  capacity  of  the  land  bank  to  meet  the  needs  of 
the  borrower  so  long  as  it  can  sell  its  bonds.  If  the  loans  are  conserva- 
tively made,  no  losses  can  reasonably  occur  which  would  at  any  time 
depreciate  the  value  of  the  bonds. 

Terms  and  conditions  of  loans  made  by  federal  land  banks.  The 
restrictions  placed  on  federal  land  banks  in  making  loans  are  definitely 
set  forth  in  section  12  of  the  farm  loan  act  as  follows : 

"Sec.  12.  That  no  federal  land  bank  organized  under  this  act 
shall  make  loans  except  upon  the  following  terms  and  conditions : 

"First.  Said  loans  shall  be  secured  by  duly  recorded  first  mort- 
gages on  farm  land  within  the  land  bank  district  in  which  the  bank  is 
situated. 

"Second.  Every  mortgage  shall  contain  an  agreement  providing 
for  the  repayment  of  the  loan  on  an  amortization  plan  by  means  of  a 
fixed  number  of  annual  or  semi-annual  installments  sufficient  to  cover, 
first,  a  charge  on  the  loan,  at  a  rate  not  exceeding  the  interest  rate  in  the 
last  series  of  farm  loan  bonds  issued  by  the  land  bank  making  the  loan ; 
second,  a  charge  for  administration  and  profits  at  a  rate  not  exceeding 
one  per  centum  per  annum  on  the  unpaid  principal,  said  two  rates  com- 
bined constituting  the  interest  rate  on  the  mortgage ;  and  third,  such 
amounts  to  be  applied  on  the  principal  as  will  extinguish  the  debt  within 
an  agreed  period,  not  less  than  five  years  nor  more  than  forty  years : 
Provided,  that  after  five  years  from  the  date  upon  which  a  loan  is 
made  additional  payments  in  sums  of  $25  or  any  multiple  thereof  for 
the  reduction  of  the  principal,  or  the  payment  of  the  entire  principal, 
may  be  made  on  any  regular  installment  date  under  the  rules  and  regu- 
lations of  the  Federal  Farm  Loan  Board :  And  provided  further,  that 
before  the  first  issue  of  farm  loan  bonds  by  any  land  bank  the  interest 
rate  on  mortgages  may  be  determined  in  the  discretion  of  said  land 
bank,  subject  to  the  provisions  and  limitations  of  this  act. 

"Third.  No  loan  on  mortgage  shall  be  made  under  this  act  at  a 
rate  of  interest  exceeding  6  per  centum  per  annum,  exclusive  of 
amortization  payments. 

"Fourth.  Such  loans  may  be  made  for  the  following  purposes  and 
for  no  other : 


1097 

"(a)     To  provide  for  ihc  purchase  of  land  for  agricultural  use_. 

"(b)  To  provide  for  the  purchase  of  e(|uipiiient,  fertilizers  and 
live  stock  necessary  for  the  proper  and  reasonable  operations  of  the 
mortgaged  farm  ;  the  term  "equipment"  to  be  dehned  by  the  Federal 
Farm  Loan  Board. 

"(c)  To  j)rovide  buildings  and  for  the  improvement  of  farm 
lands  ;  the  term  "improvement"  to  be  defined  bv  the  Federal  Farm  Loan 
Board. 

"(d)  To  liciuidate  indebtedness  of  the  owner  of  the  land  mort- 
gaged, existing  at  the  time  of  the  organization  of  the  first  national  farm 
loan  association  esta])lished  in  or  for  the  county  in  which  the  land 
mortgaged  is  situated,  or  indebtedness  subsequently  incurred,  for  pur- 
poses mentioned  in  this  section. 

"Fifth.  No  such  loan  shall  exceed  50  per  centum  of  the  value  of 
the  land  mortgaged  and  20  per  centum  of  the  value  of  the  permanent, 
insured  improvements  thereon,  said  value  to  be  ascertained  by  appraisal, 
as  provided  in  Sec.  10  of  this  act.  In  making  said  appraisal  the  value 
of  the  land  for  agricultural  purposes  shall  be  the  basis  of  appraisal  and 
the  earning  power  of  said  land  shall  be  a  principal  factor. 

"A  reappraisal  may  be  permitted  at  any  time  in  the  discretion  of 
the  federal  land  bank,  and  such  additional  loan  may  be  granted  as  such 
reaj)])raisal  will  warrant  under  the  provisions  of  this  paragraph.  When- 
ever the  amount  of  the  loan  applied  for  exceeds  the  amount  that  may 
be  loaned  under  the  appraisal  as  herein  limited,  such  loan  may  be 
granted  to  the  amount  permitted  under  the  terms  of  this  paragraph 
without  requiring  a  new  application  or  appraisal. 

"Sixth.  No  such  loan  shall  be  made  to  any  person  who  is  not  at 
the  time,  or  shortly  to  become,  engaged  in  the  cultivation  of  the  farm 
mortgaged.  In  case  of  the  sale  of  the  mortgaged  land,  the  federal  land 
bank  may  jx^rmit  said  mortgage  and  the  stock  interests  of  the  vendor 
to  be  assumed  by  the  purchaser.  In  case  of  the  death  of  the  mortgagor 
his  heir  or  heirs,  or  his  legal  representative  or  representatives  shall 
have  the  option,  within  sixty  days  of  such  death,  to  assume  the  mort- 
gage and  stock  interests  of  the  deceased. 

"Seventh.  The  amount  of  loans  to  any  one  borrower  shall  in  no 
case  exceed  a  maxinunn  of  $10,000,  nor  shall  anv  loan  be  for  a  less  sum 
than  $100. 

"Eighth.  Every  applicant  for  a  loan  under  the  terms  of  this  act 
shall  make  application  on  a  form  to  be  prescribed  for  that  purpose  by 
the  Federal  Farm  Loan  Board,  and  such  aj)plicant  shall  state  the  ob- 
jects to  which  the  proceeds  of  said  loan  are  to  be  applied,  and  shall  af- 
ford such  other  information  as  may  be  refjuired. 

"Ninth.  Every  borrower  shall  pay  simple  interest  on  defaulted 
payments  at  the  rate  of  8  per  centum  per  annum,  and  by  express  cove- 
nant in  his  mortgage  deed  shall  undertake  to  pay,  when  due  all  taxes, 
liens,  judgments  or  assessments  which  may  be  lawfully  assessed  again.st 
the  land  mortgaged.  Taxes,  liens,  judgments  or  assessments  not  paid 
when  due.  and  paid  by  the  mortgagee,  shall  become  a  part  of  the  mort- 
gage debt  and  shall  bear  simple  interest  at  the  rate  of  S  per  centum  per 
annum.     Every  borrower  shall  undertake  to  keep  insured  to  the  satis- 


1098 

faction  of  the  Federal  Farm  Loan  Board  all  buildings,  the  value  ot 
which  was  a  factor  in  determining  the  amount  of  the  loan.  Insurance 
shall  be  made  payable  to  the  mortgagee  as  its  interest  may  appear  at 
time  of  loss,  and,  at  the  option  of  the  mortgagor  and  subject  to  gen- 
eral regulations  of  the  Federal  Farm  Loan  Board,  sums  so  received  may 
be  used  to  pay  for  reconstruction  of  the  buildings  destroyed. 

"Tenth.  Every  borrower  who  shall  be  granted  a  loan  under  the 
provisions  of  this  act  shall  enter  into  an  agreement,  in  form  and  under 
conditions  to  be  prescribed  by  the  Federal  Farm  Loan  Board,  that  if  the 
whole  or  any  portion  of  his  loan  shall  be  expended  for  purposes  other 
than  those  specified  in  his  original  application,  or  if  the  borrower  shall 
be  in  default  in  respect  to  any  condition  or  covenant  of  the  mortgage, 
the  whole  of  said  loan  shall,  at  the  option  of  the  mortgagee,  become  due 
and  payable  forthwith :  Provided,  that  the  borrower  may  use  part  of 
said  loan  to  pay  for  his  stock  in  the  farm  loan  association,  and  the  land 
bank  holding  such  mortgage  may  permit  said  loan  to  be  used  for  any 
purpose  specified  in  subsection  fourth  of  this  section. 

"Eleventh.  That  no  loan  or  the  mortgage  securing  the  same  shall 
be  impaired  or  invalidated  by  reason  of  the  exercise  of  any  power  by 
any  federal  land  bank  or  national  farm  loan  association  in  excess  of 
the  powers  herein  granted  or  any  limitations  thereon. 

"Funds  transmitted  to  farm  loan  associations  by  Federal  land 
banks  to  be  loaned  to  its  members  shall  be  in  current  funds,  or  farm 
loan  bonds,  at  the  option  of  the  borrower." 

Pozvers  of  federal  land  banks.  The  powers  of  federal  land  banks 
are  summarized  in  Sec.  13  of  the  law  as  follows : 

"Sec.  13.  That  every  federal  land  bank  shall  have  power,  subject 
to  the  limitations  and  requirements  of  this  act — 

"First.  To  issue,  subject  to  the  approval  of  the  Federal  Farm 
Loan  Board,  and  to  sell  farm  loan  bonds  of  the  kinds  authorized  in 
this  act,  to  buy  the  same  for  its  own  account,  and  to  retire  the  same  at 
or  before  maturity. 

"Second.  To  invest  such  funds  as  may  be  in  its  possession  in  the 
purchase  of  qualified  first  mortgages  on  farm  lands  situated  within  the 
federal  land  bank  district  within  which  it  is  organized  or  for  which  it 
is  acting. 

"Third.  To  receive  and  to  deposit  in  trust  with  the  farm  loan 
registrar  for  the  district,  to  be  by  him  held  as  collateral  security  for 
farm  loan  bonds,  first  mortgages  upon  farm  land  qualified  under  sec- 
tion 12  of  this  act,  and  to  empower  national  farm  loan  associations,  or 
duly  authorized  agents,  to  collect  and  immediately  pay  over  to  said  land 
banks  the  dues,  interest,  amortization  installments  and  other  sums  pay- 
able under  the  terms,  conditions,  and  covenants  of  the  mortgages  and  of 
the  bonds  secured  thereby. 

"Fourth.     To  acquire  and  dispose  of — 

"(a)  Such  property,  real  or  personal,  as  may  be  necessary  or  con- 
venient for  the  transaction  of  its  business,  which,  however,  may  be  in 
part  leased  to  others  for  revenue  purposes. 

"(b)  Parcels  of  land  acquired  in  satisfaction  of  debts  or  pur- 
chased at  sales  under  judgments,  decrees,  or  mortgages  held  by  it.    But 


1099 

no  such  bank  shall  hold  title  and  possession  of  any  real  estate  pur- 
chased or  accjuired  to  secure  any  debt  due  to  it,  for  a  longer  period 
than  five  years,  except  with  the  special  approval  of  the  Federal  Farm 
Loan  Board  in  writing. 

"Fifth.  To  deposit  its  securities,  and  its  current  funds,  subject  to 
check,  with  any  member  of  the  Federal  Reserve  System,  and  to  re- 
ceive interest  on  the  same  as  may  be  agreed. 

"Sixth.  To  accept  deposits  of  securities  or  of  current  funds  from 
national  farm  loan  associations  holding  its  shares,  but  to  pay  no  in- 
terest on  such  deposits. 

"Seventh.  To  borrow  money,  to  give  security  therefor,  and  to 
pay  interest  thereon. 

"Fighth.     To  buy  and  sell  United  States  bonds. 

"Ninth.  To  charge  applicants  for  loans  and  borrowers,  under 
rules  and  regulations  promulgated  by  the  Federal  I'arm  Loan  Board, 
reasonable  fees  not  exceeding  the  actual  cost  of  appraisal  and  de- 
termination of  title.  Legal  fees  and  recording  charges  imposed  by  law 
in  the  State  where  the  land  to  be  mortgaged  is  located  may  also  be  in- 
cluded in  the  preliminary  costs  of  negotiating  mortgage  loans.  The 
borrower  may  pay  such  fees  and  charges  or  he  may  arrange  with  the 
federal  land  l)ank  making  the  loan  to  advance  the  same,  in  which  case 
said  expenses  shall  be  made  a  i)art  of  the  face  of  the  loan  and  paid  off 
in  amortization  payments.  Such  addition  to  the  loan  shall  not  be  per- 
mitted to  increase  said  loan  above  the  limitations  provided  in  sec- 
tion 12." 

Rrstrictions  on  federal  land  banks.  The  following  restrictions 
which  the  law  places  on  federal  land  banks  are  definitely  set  forth  in 
Sec.  14. 

"Sec.  14.     That  no  federal  land  l)ank  shall  have  power — 

"First.  To  accept  deposits  of  current  funds  payable  upon  de- 
mand except  from  its  own  stockholders,  or  to  transact  any  banking  or 
other  business  not  expressly  authorized  by  the  provisions  of  this  act. 

"Second.  To  loan  on  first  mortgages  exce])t  thrcugh  national  farm 
loan  associations  as  provided  in  section  7  and  section  8  of  this  act,  or 
through  agents  as  provided  in  section  15. 

"Third.  To  accept  any  mortgages  on  real  estate  except  first 
mortgages  created  subject  to  all  limitations  imposed  by  section  12  of 
this  act.  and  those  taken  as  additional  security  for  existing  loans. 

"Fourth.  To  issue  or  obligate  itself  for  outstanding  farm  loan 
bonds  in  excess  of  twenty  times  the  amount  of  its  capital  and  surjilus, 
or  to  receive  from  any  national  farm  loan  association  additional  mort- 
gages when  the  principal  remaining  unpaid  upon  mortgages  already 
received  from  such  as.sociation  shall  exceed  twenty  times  the  amount 
of  its  capital  stock  owned  by  such  association.  ^ 

"Fifth.  To  demand  or  receive,  under  any  form  or  pretense,  any 
commission  or  charge  not  specifically  authorized  in  this  act." 

Agents  of  federal  land  banks.  After  the  act  has  been  in  efTect  for 
a  vcar  federal  land  banks  aie  authorized  to  make  loans  on  farm  lands 
through  agents  approved  by  the  Federal  Farm  Loan  Board  whenever 


1100 

it  appears  that  national  farm  loan  associations  have  not  been  formed 
and  are  nQt  likel}'  to  be  formed  in  any  locality  because  of  peculiar  local 
conditions. 

Loans  made  through  agents  are  subject  to  the  same  conditions 
and  restrictions  as  if  they  were  made  through  national  farm  loan  asso- 
ciations ;  but  no  agent  may  be  employed  other  than  a  duly  incorporated 
bank,  trust  company,  mortgage  company  or  savings  institution  char- 
tered by  the  state  in  which  it  has  its  principal  office. 

Federal  land  banks  may  pay  such  agents  the  actual  expenses  con- 
nected with  making  loans ;  such  expenses  become  part  of  the  loan  and 
are  paid  off  in  amortization  payments.  In  addition,  agents  may  be 
allowed  a  commission  not  to  exceed  one-half  of  one  per  cent  per  an- 
num upon  the  unpaid  principal  of  the  loan.  Such  commission  is  to  be 
deducted  from  dividends  payable  to  the  borrower  on  his  stock  in  the 
federal  land  bank. 

Agents  must  indorse  and  become  liable  upon  mortgages  received 
from  them  and  such  mortgages  may  not  exceed  ten  times  the  amount 
of  the  agent's  capital  and  surplus.  They  may  further  be  required  to 
collect  and  remit  payments  on  loans  without  charge.  Whenever  the 
district  represented  by  any  agent  is  adequately  served  by  national  farm 
loan  associations  no  further  loans  may  be  negotiated  therein  by  agents. 

Bonds  of  federal  land  banks.  While  the  government  does  not 
guarantee  the  bonds  of  the  federal  land  banks,  they  are  issued  under 
the  supervision  of  the  government  and  cannot  be  issued  until  the  gov- 
ernment authorities  have  passed  upon  the  security  and  satisfied  them- 
selves that  each  dollar  of  bonds  issued  is  secured  by  at  least  two  dollars 
worth  of  land,  and  each  bond  contains  on  its  face  a  certificate  of  its 
regularity  signed  by  the  Federal  Farm  Loan  Commissioner,  a  govern- 
ment official.  In  addition  they  are  secured  by  the  5  per  cent  stock 
owned  by  each  farmer  borrower,  and  held  as  collateral  security  by  the 
local  loan  associations,  and  if  that  is  not  sufficient,  there  is  the  ad- 
ditional 5  per  cent  liability  against  each  farmer  stockholder ;  moreover, 
the  local  farm  loan  associations  are  required  to  indorse  every  loan 
made  to  its  members  by  the  federal  land  bank.  The  bonds  are  also 
backed  by  the  resources  of  the  12  federal  land  banks  now  established 
in  the  United  States.  The  wide  distribution  of  the  security,  unaffected 
by  local  conditions  in  any  part  of  the  nation,  contributes  greatly  to  its 
value  and  stability ;  for,  as  a  matter  of  fact,  the  farm  loan  bonds  are 
backed  by  at  least  twice  their  face  value,  plus, the  indorsement  of  the 
national  farm  loan  associations,  plus  the  resources  of  the  12  federal 
land  banks  located  throughout  the  country. 


Joint  Stock  Land  Banks. 

Differentiated  from  federal  land  banks.  The  joint  stock  land 
banks  are  organized  under  section  16  of  the  federal  farm  loan  act. 
These  joint  stock  banks  are  private  institutions  intended  for  the  invest- 
ment of  private  capital  but  they  are  supervised  by  the  Federal  Farm 


1101 

Loan  Board  and  inspected  by  its  examiners,  and  appraisals  made  by 
them  in  placing  first  mortgage  loans  are  likewise  under  the  control  of 
the  board.  They  have  no  conncciiiai  with  the  federal  land  banks  and 
are  distinguished  from  them  as  being  cooperative  associations  of 
lenders  :  u  horeas.  the  national  farm  loan  associations  and  the  federal 
land  banks  operate  as  cooperative  associations  of  borrowers. 

The  act  provides  that  private  individuals  may  organize  joint  stock 
land  banks  with  capital  stock  of  at  least  $250,000  each,  and  consisting 
of  not  less  than  1(»  stockholders.  One-half  of  the  stock  is  to  be  paid 
up  when  the  bank  starts  business,  and* the  other  half  is  subject  to  call. 
The  shareholders  are  individually  responsible,  ec|ually  and  ratably,  and 
not  one  for  anoiher.  to  the  extent  of  the  par  value  of  tlic  stock  owned 
by  them  and  in  addition  to  the  amount  paid  in  and  represented  by  their 
shares. 

The  joint  stock  bank  has  the  right  to  issue  bonds  after  its  capital 
is  fully  ])aid  up.  just  as  the  federal  land  banks  do,  but  it  may  not  issue 
bonds  aggregating  more  than  fifteen  times  the  amount  of  its  capital 
and  surplus.  Nothing  but  a  first  mortgage  may  be  utilized  as  security 
for  an  issue  of  bonds,  -\fter  the  mortgage  loans  are  made  they  are 
deposited  with  the  registrar  of  the  federal  land  bank  district,  who  for- 
wards them  to  the  Federal  Farm  Loan  Board  at  Washington  for  ap- 
proval. When  the  loans  have  been  aj)proved  the  board  issues  joint 
stock  land  bank  bonds  to  the  liank  which  deiiosited  the  loans.  The 
sale  of  these  bonds  furnishes  additional  ca]Mtal  for  further  loans. 

The  joint  stock  bank  may  make  mortgage  loans  at  a  rate  of  1  per 
cent  per  annum  above  the  rate  which  its  last  issue  of  bonds  bears,  but 
they  are  not  permitted  to  charge  over  fi  per  cent  interest. 

Joint  stock  banks  operate  under  the  amortization  plan,  the  same 
as  the  federal  land  banks. 

Except  as  otherwise  provided  in  the  law.  joint  st(K-k  land  banks 
have  the  same  general  powers  and  limitations  as  federal  land  batiks, 
but  they  are  specifically  exempt  from  a  number  of  provisions  applic- 
able to  federal  land  banks.  The  main  difference  in  the  regulation  and 
supervision  of  the  two  institutions  arises  from  the  fact  that  one  is  a 
cooperative  association  of  borrowers  and  the  other  a  cooperative  asso- 
ciation of  lenders. 

Farm  loans  made  bv  the  joint  stock  land  banks.  The  following 
tables  show  the  loans  made  by  joint  stock  land  banks  now  operating 
under  the  federal  act.  The  different  banks  are  arranged  in  order  ac- 
cording to  priority  of  organization.  This  arrangement  presents  the 
chronological  as  well  as  the  geographical  development  of  the  joint 
stock  banks  throughout  the  country.  The  joint  stock  l)anks  may  make 
loans  on  agricultural  land  only  in  the  state  in  which  they  are  located 
and  one  adjoining  state. 


1102 


o  eo  LO 
O  CO  to 
iM  eo  O 


o, 

o 

►-< 

•_2 

Os 

rt 

>-s 

N 

^ 

CI 

1-1 

a 

""n 

bt 

u 

^ 

o 

o 


^        02 


e   c3 


o  o 
o  o 
c-  o 


ooooc;oooir3ocvooooooooo 
ooLfiLsoooociot-ooooini^odo 


m  CO 

o  ai 


T-icqc-iffloocc-^OL.OL.-tm-^oct-Ln-^u^rtt-toc-c-c^iT-i-^ 

00S^00C5THC>0C<I-*lXlwa5C<IC-Ln(rgO3ir-IOC-=0C<ltDC~ 

c<im-*icocooocaii"5tD—  fooc<iasc~'*iH       lOi-iocceo 


O    O    02 

^  *j '"' 

3    to  ■ 

rt  rt  ri 

M      O    ■" 

s  -^  -a 
O  " 


a;  0) 

CC  CO 

to  CO 

a>  m 

S  C 

c  c 


rt  .2 


CO 

CO 

m 

^H 

o 

C 

g 

-3 

-< 

Ul 

[  1 

-73 

rt 

T5 

a, 

CO 
OS 

rrt 

ro 

CO 

CO 

Co 

CO 

c 

-t! 

OJ 

rt 

> 

l-l 

^ 

u 

Ui^< 

^.2^ 


^  -c  ^  -c 

2;    c«3   rt 


o  ^  .c 


o  c 

CO    o 

So 


.5^ 


5   CO   CO 


rt 


C   O 


^  i  5  S 


-i    ^    ^   C  z: 

C   S   rt  ;3   rt   C 


rt  cS 
1^ 


^2  c 
a>       c 

c3    C 
■—    C3 

03  -g,  rt 


-3   3 

c  o 

03  -3 


o3  u 


x:  S 


•is 


Uw    o 
P  b£. 


:_  ^ 


.22  S 


to       ~        --  « 


^   t--  ^ 


^u: 


—  a;  - 


g.  C  C 


t-5    o 


-^ 


cs  o 

o3   =^ 


CO  C- 

c3  a 

CO  QJ 

H^  to 


>  »5  §  i£   rt  _^   j^ 


2;  ?•; 


^ ;:: 


to  '^ 
5  03 


^    .E-i 


^  to    j^ 


.-c 


2> 


H-  to 
o3   o! 


-SSi'S^  ?i 


o.'o 


.S  .-^^ 


_^i   ^  ^   c 


5  -a  -2  ^  S^  m  fl 


So 


1^  « 


(1)   1-1 


^^    (-«    J3     p^  ^    ^j     ^2 


M^   o 


C3 

.S  fi 


o3 


—  c  "-i  o  o  t;  a  o 


CO    t-  -C  — <    ^ 


Q^ 


c3 


-sec 

■-  ci  := 
P5  03  CC 


rrj    CO    to 

^  o3  n: 

l2     CO    J-H 

C 

■^        £f 
^'.  ^-  '«^ 

a  cs 

o3   O  J3 
i^t-U 


C    C3 

=3 


n 

o3 


e    03 


■2  =« 

c5  .—  'S  c  ~^  — . 


03 


"  c 


I 
m 


S-g  SJ^^  P 


TT  03  -^ 

C  J      ■ 

'-'  -^     .     • 

o  ?^    ■  ^ 

-  03 1-5  -e 


^.ix!   0«2i 


C.S  2 


eg 


03 


>-;  o  fi  .s  «2 


•"  —  '-' 

'"'  a  "? 

>.  CO   CO 
*j   CO   fl 


2.^^ 


->j  *j  — 


03 

.« .9 

^    CO    O    O 


5.S^ 


fl    O    o 


tH  1-5  1-:   CO   C 


O   ^  r 


■x  =^  S  -^  t;?  -^ 


w     u;    i—  ,^  _;^  " 


jS<; 


CO    CO    C 


jcnfcfe^; 


C   X  o 


CLh 


o3 

*j 

.^ 

0) 

c 

o 

H 

oi 

§ 

CI 
O 

Ol 

tH 

cc 

03 
Lh 

^ 

feOfc 

o 

«^    O.S 
o     ■   rt§ 

•-  ^  c  2 
c  i  •==  5 

-r  5^  t-  5 
o  o  •"  o 

oo>m 


J  ^      a: 

o  2  "  c 

2  '^  2'S 


^  c 

^  ^  C  .     • 

-      ^  -H  J 

^        C  .     .-H 

§  2aj  i: 

1^  02    .  o 

03  1-5    M 

-kJ  CD 

-tJ  c  -^  -^ 

.£    O   3  ^ 

C  1-5    O    03 

1-:         CO  •;:; 
O   CO   O 

^  +j  ^  .5 
£  >>  tc^ 


Cl< 


^- 1^  .2  -  :t: 


c^i 


•—        g   CO 
"3   03  ,«S  .- 


1103 

Consolidated  Statement  of  Condition  of  the  Joint  Stoek  Land  Banki- 
at  the  Close  of  Business  October  5/,  79/9.  * 

ASSETS. 

Mortgage    Loans    ^^'^-^-I'^.-'J^-l^ 

Plus    Accrued    Interest     o<u.uot>.!>u 

Subtotal     48.308.S32. 63 

Less-Aniortlzation    payments     216.016.10 

Net    Mortgage    Loans    $48.092,816 . 53 

V.  S.   Government   Bonds   and   Securities 8.486,879.49 

Accrued   Interest  on   V.   S     Honds.       ,,,*I'.,!'.;  "..n 

Farm    Loan    Uonds  on   Hand    (unsold) vll-'    o^-^^ 

Cash  on   Hand  and   in   Banks 3.41o.938.40 

Banking    House     -IK^^-sS 

Furniture    and    Fixtures    r^^ij-nn 

Accounts    Receivable     -r  ".'c ,  '  „" 

(0.461. 95 


Other  Assets    

Total    Assets    $62.9  IT. 08.').  39 

LIABILITIES. 

Capital    Stock    Paid    in *  "■?-:*]?-«!! 

Surplus   Paid   in    H-'H'ia^ 

Reserve      .i;>. j.i  i .  ha 

Farm    Loan    Bonds    Authorized ■'?'jio^?ll^  oo 

Reserved   for   Interest  on   Farm   Loan   Bonds 1'aac'I  .•    •? 

Bills  Pavable  (Money  and  Bonds  borrowed) "'nc  .-ij  nJ 

Accounts    Payable    ^■2c--i7o ' 25 

Other    Liabilities    Jba.b /.,  .h-» 

Excess  of  Earnings  over  Expenses  and  Interest  Charges 33.360.96 

$62,917,085.39 


Amortization  Plan  of  the  Federal  System, 

Loans  niadc  by  federal  land  banks  or  by  joint  stock  land  banks 
must  be  made  on  the  amortization  plan  and  no  mortgage  made  on  any 
other  plan  can  he  accepted  as  a  basis  for  any  issue  of  farm  loan  bonds. 

This  process  of  paying  off  an  indebtedness  by  installment  pay- 
ments of  a  fixed  amount,  which  includes  interest  and  a  i)art  of  the 
principal,  throughout  a  period  of  years,  enables  a  farmer  to  take  3 
large  loan  without  undue  risk.  Under  the  federal  plan  of  amortiza- 
tion a  mortgage  loan  may  run  from  o  to  40  years  at  the  option  of 
the  borrower.  The  payment  of  the  interest  rate  and  1  per  cent  addi- 
tional per  year  applied  on  tbe  jirincipal  will  wipe  out  the  mortgage  in 
about  30  years.  Tbis  period  may  be  shortened  by  making  additional 
payments  on  the  principal,  from  time  to  time,  as  the  farmer  may  find 
it  convenient. 

The  amortization  payments  may  be  made  annually  or  semi- 
annually, but  the  semi-annual  system  has  been  adopted  as  the  stand- 
ard, ^as  it  is  usually  an  easier  method  for  a  farmer  operating  a  small 
farm.  Thus,  tbe  semi-annual  payment  on  a  $1,000  mortgage  for 
^C^  vears  at  5  per  cent  wouUl  require  a  payment  of  $:{0  every  Gnionths. 
This  pavment  would  wipe  out  the  mortgage  and  discharge  it  at  the 
end  of  tile  thirty-six  year  period.  The  farmer  always  has  the  privilege 
of  making  additional  payments  after  the  mortgage  has  run  for  a  per- 
iod of  5  years.  After  that  time  he  can  wipe  out  his  loan  in  whole 
or  in  part  on  any  interest  pay  day. 


1104 


Amortisation  methods  of  the  federal  land  hanks  and  the  joint 
stock  land  banks.  The  amortization  methods  of  the  land  banks  under 
the  federal  system  have  been  standardized,  so  that  it  is  very  easy 
to  make  these  payments  to  the  land  bank  from  which  the"  loan  has 
been  taken. 

The  following  table  shows  the  application  of  succeeding  instal- 
ments in  the  payment  of  interest  and  principal  until  the  entire  in- 
debtedness is  amortized. 


[A  loan  of  $1,000  at    ^  per  cent  interest  repayable  in  .35  years  as  compared  with 
loan  for  tbe  same  amount  and  period  of  loan.] 

a  Straight 

Amortization  loan. 

Straig-ht  loan. 

Payment  Number. 

Install- 
ment. 

Interest. 

Applied 
on  prin- 
cipal. 

Principal 

still 

unpaid. 

Interest. 

Principal 

still 
unpaid. 

1                  

$65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
62  50 

$55  00 
54  45 
53  87 
53  26 
52  61 
51  93 
51  21 
50  45 
49  65 
48  81 
47  92 
46  98 
45  99 
44  94 
43  84 
42  68 
41  45 
40  15 
38  79 
37  34 
35  82 
34  22 
32  52 
30  74 
28  85 
26  87 
24  77 
22  56 

$10  00 

10  55 

11  13 

11  74 

12  39 

13  07 

13  79 

14  55 

15  35 

16  19 

17  OS 

18  02 

19  01 

20  06 

21  16 

22  32 

23  55 

24  85 

26  21 

27  66 

29  18 

30  78 
32  48 
34  26 
.36  15 
38  13 
40  23 
42  44 

.       $990  00 
979  45 
968  32 
956  58 
944  19 
931  12 
917  33 
902  78 
887  43 
871  24 
854  16 
836  14 
817  13 
797  07 
775  91 
753  59 
730  04 
705  19 
678  98 
651  .32 
622  14 
.591  36 
558  88 
524  62 
488  47 
450  34 
410  11 
367  67 
322  89 
275  65 
225  81 
173  23 
117  76 
59  24 

$55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
65  00 
55  00 
55  09 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 
55  00 

$1,000 

2       

1,000 

3  

1,000 

4       .           

1,000 

5     

1,000 

6 

1,000 

7 

1.000 

8     

1. 000 

9 

1 ,  000 

10            

1.000 

11 

1,000 

12       

1.000 

13     

1,000 

14       .           

1.000 

15     

1.000 

16 

1,000 

17      

1.000 

18 

1 .  000 

19 

1.000 

20     

1,000 

21 

1,000 

22       .           

1.000 

23 

1.000 

24                 

1,000 

25 

1,000 

26 

1 .  000 

27  

1,000 

28 

1.000 

29 

20  22  '         44  78 

1 ,  000 

30 

17  76 
15  16 
12  42 
9  53 
6  48 
3  26 

47  24 
49  84 
52  58 
55  47 

58  52 

59  24 

1,000 

31   .           ...           .           

1 .  000 

32 

1 ,  000 

33                            .           

1.000 

34 

1,000 

35 

1.000 

$2,272  50 

$1,272  50 

$1,000  00 

$1,925  00 

$1,000 

Comparison  at  the  end  of  35  years; 
Under  straight  loan  plan— 

35  interest  payments   of  $55  each $1,925  00 

Principal  unpaid 1.000  00 

$2,925  00 
Under  amortization  plan — 

35  installments,  as  agreed,  paying:  both  interest  and  principal $2,272  50 

Saving $652  50 

The  following  method  of  paying  oflf  ahead  of  time  has  recently 
been  promulgated  by  the  Federal  Farm  Loan  Board.  Its  advantages 
are  perfectly  plain  to  any  borrower.     The  regular  amortization  table 


1105 


can  be  used  during  the  entire  period  covered  by  the  mortgage  without 
any  puzzhng  problem  in  arithmetic.  In  the  present  case,  the  loan  is 
paid  otT  in  '■il  years  instead  of  3.').  The  amount  of  interest  paid  is 
reduced  from  $1. "^72.50.  under  the  regular  amortized  3o-year  loan, 
to  $TG8.T8,  or  a  saving  of  $503.72  in  interest. 

[A  35-year8.  amortization  loan  of  $1,000  at  5i  per  cent  interest,  but  with  the  privilesre  of 
repaying  succeeding  sums  that  would  be  regularly  applied  on  the  principal  1 


Payment  Number. 

Install- 
ment. 

Interest. 

Applied 
on  prin- 
cipal. 

Principal 

siiil 

unpaid. 

Addi- 
tional 
payment. 

Principal 

still 
unpaid. 

1                           

$65  00 

65  00 

65  00 

66  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
65  00 
62  50 

$55  00 

54  45 
53  87 
53  26 

55  61 
49  65 
48  81 
47  92 
46  98 
43  84 
42  68 
41  45 
34  22 
32  52 
26  87 
24  77 
22  56 
15  16 
12  42 

6  48 
326 

$10  00 

10  55 

11  13 

11  74 

12  39 

15  35 

16  19 

17  08 

18  02 

21  16 

22  32 

23  55 
30  78 
32  48 
38  13 
40  23 
42  44 
49  84 
52  58 

58  52 

59  24 

$990  00 
979  45 
968  32 
956  58 
944  19 
887  43 
871  24 
854  16 
836  14 
775  91 
753  59 
730  04 
591  36 
558  88 
450  34 
410  11 
367  67 
225  81 
173  23 
59  24 

t      

3    

4 

5 

$  41  41 

$902  78 

6  (9) 

887  43 

871  24 

8                                                

854  16 

9 

39  07 

797  07 

10  (15) 

775  91 

11                                                    

753  59 

12 

107  90 

622  14 

13  (•>«) 

591  36 

H 

70  41 

488  47 

15  (26)                                  

450  34 

16 

410  11 

17 

92  02 

275  65 

18  (31) 

235  81 

19 

55  47 

117  76 

80  (34) 

59  24 

21 

$788  78 

$593  72 

$406  28 

Application  of  amortization  and  interest  payments.  The  law 
makes  the  following  provision  for  the  application  of  amortization 
and  interest  payments  collected  on  pledged  mortgages  held  in  trust : 

Amortization  and  other  payments  on  the  principal  of  first  mort- 
gages held  by  a  farm  loan  registrar  as  collateral  security  for  the 
issue  of  farm  loan  bonds  constitute  a  trust  fund  in  the  hands  of  the 
federal  land  bank  or  joint  stock  land  bank  receiving  the  same,  and 
must  be  applied  as  follows: 

In  the  case  of  a  federal  land  bank — 

(a)  To  pay  off  farm  loan  b(mds  issued  by  said  bank  as  they 
mature. 

(b)  To  purchase  at  or  below  par  farm  loan  bonds  issued  by  said 
bank  or  by  any  other  federal  land  bank. 

(c)  To  loan  on  first  mortgages  on  farm  lands  within  the  land 
bank  district,  qualified  under  this  act  as  collateral  security  for  an  issue 
of  farm  Joan  bonds. 

(d)  To  purchase  United  States  government  bonds. 
In  the  case  of  a  joint  stock  land  bank — 

(a)  To  pay  off  farm  loan  bonds  issued  by  said  bank  as  they 
mature. 

(b)  To  purchase  at  or  below  par  farm  loan  bonds. 

(c)  To  loan  on  first  mortgages  qualified  under  section  16  of 
this  act. 


1106 

(d)   To  purchase  United  States  government  bonds. 

The  farm  loan  bonds,  first  mortgages,  United  States  government 
bonds,  or  cash  constituting  the  trust  fund  aforesaid,  are  forthwith 
to  be  deposited  with  the  farm  loan  registrar  as  substituted  collateral 
security  in  place  of  the  sums  paid  on  the  principal  of  indorsed  mort- 
gages held  by  him  in  trust. 

Every  federal  land  bank,  or  joint  stock  land  bank,  is  required 
to  notify  the  farm  loan  registrar  of  the  disposition  of  all  payments 
made  on  the  principal  of  mortgages  held  as  collateral  security  for 
an  issue  of  farm  loan  bonds,  and  the  registrar  is  authorized  at  his 
discretion,  to  order  any  of  such  payments,  or  the  proceeds  thereof, 
wherever  deposited  or  however  invested,  to  be  immediately  trans- 
ferred to  his  account  as  trustee  aforesaid. 


Investments  in  Farm  Loan  Bonds. 

Provisions  ;:afcguarding  investments.  Investments  in  farm  loan 
bonds  by  the  farming  population  of  the  country,  and  by  thrifty  in- 
vestors generally,  are  made  attractive  by  the  many  safeguards  which 
the  law  provides  in  their  issue.  The  following  sections  indicate  that 
the  act  gives  as  careful  consideration  to  safeguarding  the  interests 
of  investors  as  it  does  in  promoting  the  welfare  of  borrowers : 

"Application  for  farm  loan  bonds.  Sec.  18.  That  any  federal 
land  bank,  or  joint  stock  land  bank,  which  shall  have  voted  to  issue 
farm  loan  bonds  under  this  act,  shall  make  written  application  to  the 
Federal  Farm  Loan  Board,  through  the  farm  loan  registrar  of  the 
district,  for  approval  of  such  issue.  With  said  application  said  land 
bank  shall  tender  to  said  farm  loan  registrar,  as  collateral  security, 
first  mortgages  on  farm  lands  qualified  under  the  provisions  of  sec- 
tion 12,  section  15,  or  section  16  of  this  act,  or  United  States  govern- 
ment bonds,  not  less  in  aggregate  amount  than  the  sum  of  the  bonds 
proposed  to  be  issued.  Said  bank  shall  furnish  with  such  mortgages 
a  schedule  containing  a  description  thereof  and  such  further  infor- 
mation as  may  be  prescribed  by  the  Federal  Farm  Loan  Board. 

"Upon  receipts  of  such  application  said  farm  loan  registrar  shall 
verify  said  schedule  and  shall  transmit  said  application  and  said 
schedule  to  the  Federal  Farm  Loan  Board,  giving  such  further  in- 
formation pertaining  thereto  as  he  may  possess.  The  Federal  Farm 
Loan  Board  shall  forthwith  cause  to  be  made  such  investigation  and 
appraisement  of  the  securities  tendered  as  it  shall  deem  wise,  and  it 
shall  grant  in  whole  or  in  part,  or  reject  entirely,  such  application. 

"The  Federal  Farm  Loan  Board  shall  promptly  transmit  its  de- 
cision as  to  any  issue  of  farm  loan  bonds  to  the  land  bank  applying 
for  the  same  and  to  the  farm  loan  registrar  of  the  district.  Said 
registrar  shall  furnish,  in  writing,  such  infonnation  regarding  any 
issue  of  farm  loan  bonds  as  the  Federal  Farm  Loan  Board  may  at 
any  time  require. 


1107 

"No  issue  of  farm  loan  bonds  shall  l^e  authorized  unless  the 
Federal  Farm  Loan  Board  shall  approve  such  issue  in  writing. 

"Issue  of  farm  loan  bonds.  Sec.  1!>.  That  whenever  any  farm 
loan  ref^^istrar  shall  receive  from  the  Federal  Farm  Loan  Board  no- 
tice that  it  has  approved  any  issue  of  farm  loan  bonds  under  the 
provisions  of  section  l:^  he  shall  forthwith  take  such  steps  as  may  be 
necessary,  in  accordance  with  the  provisions  of  this  act.  to  insure 
the  prompt  execution  of  said  bonds  and  the  delivery  of  the  same  to 
the  land  bank  applying^  therefor. 

"Whenever  the  Federal  Farm  Loan  Board  shall  reject  entirely 
any  application  for  an  issue  of  farm  loan  bonds,  the  first  mortgages 
and  bonds  tendered  to  the  farm  loan  registrar  as  collateral  security 
therefor  shall  be  forthwith  returned  to  said  land  bank  by  him. 

"Whenever  the  Federal  Farm  Loan  Board  shall  approve  an 
issue  of  farm  loan  bonds,  the  farm  loan  registrar  having  the  custody 
of  the  first  mortgages  and  bonds  tendered  as  collateral  security  for 
such  issue  of  bonds  shall  retain  in  his  custody  those  first  mortgages 
and  bonds  which  are  to  be  held  as  collateral  security,  and  shall  return 
to  the  bank  owning  the  same  any  of  said  mortgages  and  bonds  which 
are  not  to  be  held  by  him  as  collateral  security.  The  land  bank 
which  is  to  issue  said  farm  loan  bonds  shall  transfer  to  said  regis- 
trar, by  assignment,  in  trust,  all  first  mortgages  and  bonds  which 
are  to  be  held  by  said  registrar  as  collateral  security,  said  assignment 
providing  for  the  right  of  redemption  at  any  time  by  payment  as 
provided  in  this  Act  and  reserving  the  right  of  substitution  of  other 
mortgages  fpialified  under  sections  12,  lo,  and  1(5  of  this  act.  Said 
mortgages  and  bonds  shall  be  deposited  in  such  deposit  vault  or  bank 
as  the  Federal  h^arm  Loan  Board  shall  approve,  subject  to  the  con- 
trol of  said  registrar  and  in  his  name  as  trustee  for  the  bank  issuing 
the  farm  loan  bonds  and  for  the  prospective  holders  of  said  farm 
loan  bonds. 

"Xo  mortgage  shall  be  accepted  by  a  farm  loan  registrar  from  a 
land  bank  as  part  of  an  offering  to  secure  an  issue  of  farm  loan  bonds, 
either  originally  or  by  substitution,  except  first  mortgages  made  subject 
to  the  conditions  prescribed  in  said  sections  12,  15.  and  HJ. 

"It  shall  be  the  dutv  of  each  farm  loan  registrar  to  see  that  the 
farm  loan  bonds  delivered  by  him  and  outstanding  do  not  exceed  the 
amount  of  collateral  security  i)ledged  therefor.  Such  registrar  may,  in 
his  discretion.  tem|)orarily  accept,  in  place  of  mortgages  withdrawn. 
United  States  government  bonds  or  cash. 

"The  Federal  I-'arm  Loan  Board  may.  at  any  time,  call  upon  any 
land  bank  for  additional  security  to  protect  the  bonds  issued  by  it. 

"Form  of  farm  loan  bonds.  Sec.  20.  That  bonds  provided  for  in 
this  act  shall  be  issued  in  denominations  of  •$•?.').  $r)0.  $100.  .^.'iOO.  and 
$1,000;  they  shall  run  for  specified  minimum  and  maximum  periods, 
subject  to  j)ayment  and  retirement,  at  the  option  of  the  land  bank,  at 
any  time  after  five  years  from  the  date  of  their  issue.  They  shall  have 
interest  coupons  attached,  payable  semi-annually,  and  shall  be  issued 
in  series  of  not  less  than  $00,000.  the  amount  and  terms  to  be  fixed  by 


1108 

the  Federal  Farm  Loan  Board.    They  shall  bear  a  rate  of  interest  not 
to  exceed  5  per  centum  per  annum. 

"The  Federal  Farm  Loan  Board  shall  prescribe  rules  and  regula- 
tions concerning  the  circumstances  and  manner  in  which  farm  loan 
bonds  shall  be  paid  and  retired  under  the  provisions  of  this  act. 

"Farm  loan  bonds  shall  be  delivered  through  the  registrar  of  the 
district  to  the  bank  applying  for  the  same. 

"In  order  to  furnish  farm  loan  bonds  for  delivery  at  the  federal 
land  banks  and  joint  stock  land  banks,  the  Secretary  of  the  Treasury 
is  hereby  authorized  to  prepare  suitable  bonds  in  such  form,  subject  to 
the  provisions  of  this  act,  as  the  Federal  Farm  Loan  Board  may  ap- 
prove, such  bonds  when  prepared  to  be  held  in  the  treasury,  subject  to 
delivery  upon  order  of  the  Federal  Farm  Loan  Board.  The  engraved 
plates,  dies,  bed-pieces,  and  so  forth,  executed  in  connection  therewith 
shall  remain  in  the  custody  of  the  Secretary  of  the  Treasury.  Any  ex- 
penses incurred  in  the  preparation,  custody,  and  delivery  of  such  farm 
loan  bonds  shall  be  paid  by  the  Secretary  of  the  Treasury  from  any 
funds  in  Tfie  treasury  not  otherwise  appropriated  :  Provided,  however, 
that  the  Secretary  shall  be  reimbursed  for  such  expenditures  by  the 
Federal  Farm  Loan  Board  through  assessment  upon  the  farm  land 
banks  in  proportion  to  the  work  executed.  They  may  be  exchanged 
into  registered  bonds  of  any  amount,  and  re-exchanged  into  coupon 
bonds,  at  the  option  of  the  holder,  under  rules  and  regulations  to  be 
prescribed  by  the  Federal  Farm  Loan  Board. 

"Special  provisions  of  farm  loan  bonds.  Sec.  21.  That  each  land 
bank  shall  be  bound  in  all  respects  by  the  acts  of  its  officers  in  signing 
and  issuing  farm  loan  bonds,  and  by  the  acts  of  the  Federal  Farm  Loan 
Board  in  authorizing  their  issue. 

"Every  federal  land  bank  issuing  farm  loan  bonds  shall  be  primar- 
ily liable  therefor,  and  shall  also  be  liable,  upon  presentation  of  farm 
loan  bond  coupons,  for  interest  payments  due  upon  any  farm  loan 
bonds  issued  by  other  federal  land  banks  and  remaining  unpaid  in  con- 
sequence of  the  default  of  such  other  land  banks ;  and  every  such  bank 
shall  likewise  be  liable  for  such  portion  of  the  principal  of  farm  loan 
bonds  so  issued  as  shall  not  be  paid  after  the  assets  of  any  such  other 
land  banks  shall  have  been  liquidated  and  distributed :  Provided,  that 
such  losses,  if  any,  either  of  interest  or  of  principal,  shall  be  assessed 
by  the  Federal  Farm  Loan  Board  against  solvent  land  banks  liable 
therefor  in  proportion  to  the  amount  of  farm  loan  bonds  which  each 
may  have  outstanding  at  the  time  of  such  assessment. 

"Every  federal  land  bank  shall  by  appropriate  action  of  its  board 
of  directors,  duly  recorded  in  its  minutes,  obligate  itself  to  become 
liable  on  farm  loan  bonds  as  provided  in  this  section. 

"Every  farm  loan  bond  issued  by  a  federal  land  bank  shall  be 
signed  by  its  president  and  attested  by  its  secretary,  and  shall  contain 
in  the  face  thereof,  a  certificate  signed  by  the  Farm  Loan  Commis- 
sioner to  the  effect  that  it  is  issued  under  the  authority  of  the  Federal 
Farm  Loan  Act,  has  the  approval  in  form  and  issue  of  the  Federal 
Farm  Loan  Board,  and  is  legal  and  regular  in  all  respects ;  that  it  is 


1109 

not  taxable  by  national,  state,  municipal,  or  local  authority;  that  it  is 
issued  against  collateral  security  of  United  States  government  bonds, 
or  indorsed  first  mortgages  on  farm  lands,  at  least  equal  in  amount  to 
the  bonds  issued  :  and  that  all  federal  land  banks  are  liable  for  the 
payment  of  each  bond." 


1110 


IV.  OTHER  FIRST  MORTGAGE  SYSTEMS. 


State  systems.  Most  of  the  states  that  have  developed  farm 
loan  systems  have  shown  a  tendency  to  follow  the  federal  law  in  its 
general  outlines.  The  majority  of  the  states  accordingly  limit  their 
loans  to  about  50  per  cent  of  the  value  of  the  land,  and  make  no  pro- 
vision for  second  mortgages.  In  a  number  of  cases,  the  states  follow 
the  federal  system  so  closely  that  the  net  result  is  duplicated  machinery 
for  accomplishing  the  same  purpose. 

It  has  been  urged  that  the  states  should  develop  systems  that 
would  supplement  the  federal  system  and  that  the  state  farm  loan 
bureaus  are  in  a  peculiarly  advantageous  position  to  advance  loans  on 
second  mortgages  because  they  are  in  a  position  to  check  up  local  con- 
ditions ai'ka  to  make  such  loans  without  undue  risk.  But  whatever 
reasons  have  been  urged  for  or  against  existing  methods,  the  fact  re- 
mains that  present  state  systems  frequently  duplicate  work  done  by  the 
Federal  Loan  Board. 

The  South  Dakota  constitution  provides  that  "the  State  or  any 
county  or  two  or  more  counties  jointly  may  establish  and  maintain  a 
s)^stem  of  rural  credits  and  thereby  loan  money  and  extend  credit  to 
the  people  of  this  State  upon  real  estate  security  in  such  manner  and 
upon  such  terms  and  conditions  as  may  be  prescribed  by  general 
law."      .      .      .      (Art.  13,  Sec.  1.) 

Under  this  provision  a  rural  credit  system  was  enacted  in  South 
Dakota  in  1917.  (Rev.  Code  1919,  Sees.  10.  150-10,  173.)  And 
within  a  two-year  period  a  little  more  than  $10,000,000  was  loaned  on 
the  farm  lands  of  that  state. 

The  South  Dakota  law  limits  the  amount  that  can  be  loaned  to  70 
per  cent  of  the  appraised  value  of  the  land  and  40  per  cent  of  the  in- 
sured value  of  the  improvements.  The  maximum  amount  that  can  be 
loaned  to  any  one  person  is  $10,000.  The  interest  rate  for  farm  mort- 
gage loans  varies  from  5^^  to  6  per  cent.  Under  the  amortization  plan 
of  paying  the  principal,  the  borrower  actually  pays  7.26  per  cent  an- 
nually, in  two  semi-annual  payments  on  the  6  per  cent  basis,  and  6.88 
per  cent  on  the  5^  per  cent  basis.  Payment  at  this  rate  for  a  period  of 
30  years  pays  all  the  interest  and  wipes  out  the  principal.  A  borrower 
may  pay  all  or  any  part  of  his  loan  on  any  interest  date  after  5  years. 
There  are  no  commissions  of  any  kind  to  be  paid  for  securing  loans 
and  the  borrower  gets  all  the  money  he  borrows ;  none  being  retained 
for  stock  in  the  farm  land  bank,  as  is  the  case  under  the  federal  sys- 
tem. No  liability  is  incurred  by  the  borrower  except  for  his  own  loan. 
In  case  the  borrower  is  unable  to  meet  the  interest  payments  when  due, 
the  Farm  Loan  Board  may,  in  its  descretion,  defer  these  payments  for 


1111 

a  reasonable  length  of  time.  The  interest  charge  on  all  overdue  pay- 
ments is  8  per  cent. 

Money  loaned  under  this  law  may  be  used  for  any  of  the  following 
purposes:  (1)  To  purchase  farm  land;  (2)  to  purchase  equipment, 
fertilizers,  etc..  for  the  proper  and  reasonable  operation  of  the  mort- 
gaged land;  {',^)  for  buildings  and  other  improvements  on  the  land; 
(4)  for  paying  mortgages  or  other  indebtedness  incurred  for  the  pur- 
poses provided  for  in  the  law. 

The  South  Dakota  law  follows  the  general  plan  of  the  federal  act. 
It  has  the  same  general  purpose,  and  it  operates  practically  in  competi- 
tion with  the  federal  farm  loan  system. 

Amendments  to  the  constitution  of  North  Dakota  adopted  in  1918 
opened  the  way  for  the  development  of  state  farm  loans.  Sections  182 
and  185  as  amended  provide  the  basis  for  the  state  farm  loan  system. 

Sec.  182,  as  amended  in  IWIS:  "The  state  may  issue  or  guarantee 
the  payment  of  bonds,  provided  that  all  bonds  in  excess  of  $2,000,000 
shall  be  secured  by  first  mortgages  upon  real  estate  in  amounts  not  to 
exceed  one-half  of  its  value;  or  upon  real  and  personal  projierty  of 
state-owned  utilities,  enterprises,  or  industries,  in  amounts  not  exceed- 
ing its  value,  and  provided  further,  that  the  state  shall  not  issue  or 
guarantee  bonds  upon  the  property  of  state-owned  utilities,  enterprises 
or  industries  in  excess  of  $10,000,000. 

"Xo  future  indebtedness  shall  be  incurred  l)y  the  state  unless  evi- 
denced by  a  bond  issue,  which  shall  be  authorized  by  law  for  certain 
purposes,  to  be  clearly  defined.  Every  law  authorizing  a  bond  issue 
shall  provide  for  levying  an  annual  tax,  or  make  other  provision,  suffi- 
cient to  pay  the  interest  semi-annually,  and  the  i)rincipal  within  thirty 
years  from  the  passage  of  such  law.  and  shall  specially  ai)propriate  the 
proceeds  of  such  tax.  or  of  such  other  provisions,  to  the  payment  of 
saifl  principal  and  interest,  and  such  approj)riation  shall  not  be  re- 
pealed nor  the  tax  or  other  provisions  discontinued  until  such  debt, 
both  principal  and  interest,  shall  have  been  paid. 

Sec.  IS,")  as  amended  in  1918:  "The  state,  any  county  or  city  may 
make  internal  imjjrovements  and  may  engage  in  any  industry,  enter- 
prise or  i)usiness  not  prohibited  by  .Article  20  of  the  Constitution,  but 
neither  the  state  nor  any  political  subdivision  thereof  shall  otherwise 
loan  or  give  its  credit  or  make  donations  to  or  in  aid  of  any  individual, 
association  or  corporation  except  for  reasonable  support  of  the  poor. 
nor  subscribe  to  or  become  the  owner  of  capital  stock  in  any  association 
or  corporation." 

Pursuant  to  the  authority  granted  in  these  amendments  to  the  con- 
stitution the  state  legislature  in  1911)  established  the  Bank  of  North 
Dakota  and  also  made  provision  for  the  issue  of  real  estate  bonds 
based  on  first  mortgages. 

The  distinguisliing  feature  of  the  North  Dakota  law  is  the  state 
bank  which  performs  jiractically  the  same  functions  for  the  state  farm 
loan  system  that  are  performed  in  the  federal  system  by  the  federal 
land  bank.  Although  the  bank  did  not  begin  business  until  July  2Sth, 
1919.  on   December  (Jth  of  that  year  it  had  made  loans  aggregating 


1112 

$1,700,000.  Additional  loans  amounting  to  $1,300,000  had  been  ap- 
proved subject  to  the  borrower  furnishing  a  merchantable  title. 

In  construing  section  182  of  the  constitution  as  amended,  the  Su- 
preme Court  of  the  state  held  that  the  language  of  the  amended  section 
authorized  the  issue  of  $2,000,000  of  bonded  indebtedness,  unsecured 
except  by  the  faith  and  credit  of  the  state,  in  addition  to  any  bonded 
indebtedness  existing  at  the  time  of  its  adoption.  (State  v.  Hall,  173 
N.  W.  763  (1919).  This  decision  of  the  Supreme  Court,  given  in 
mandamus  proceedings  against  the  secretary  of  state  to  compel  him  to 
certify  the  bonds  as  within  the  debt  limit,  settled  the  question  as  to  the 
validity  of  the  bonds,  and  left  the  way  open  for  putting  the  rural  credit 
laws  into  practical  operation. 

The  state  of  Oregon  adopted  a  constitutional  amendment  provid- 
ing for  rural  credits  in  1916.  It  furnishes  a  typical  example  of  legis- 
lative details  embodied  in  a  state  constitution,  and  reads  as  follows  : 

"Constitution,  article  XI  a,  Rural  Credits,  Sec.  1.  Notwithstand- 
ing the  limitations  contained  in  Section  7  of  Article  XI  of  this  constitu- 
tion, the  credit  of  the  state  may  be  loaned  and  indebtedness  incurred  to 
an  amount  not  exceeding  two  per  cent  of  the  assessed  valuation  of  all 
the  property  ii^the  state  for  the  purpose  of  providing  funds  to  be 
loaned  upon  tire  security  of  farm  lands  within  the  state,  subject  to  the 
limitations  herein  contained. 

"Sec.  2.  The  governor,  secretary  of  state,  and  state  treasurer  shall 
constitutute  the  state  land  board,  which  board  is  hereby  authorized  and 
directed  to  issue  and  sell  or  pledge  bonds  in  the  name  of  the  state  to  be 
known  as  Oregon  farm  credit  bonds  in  an  amount  not  to  exceed  said 
two  per  cent  of  the  assessed  valuation  of  all  the  property  in  the  state, 
and  to  place  the  proceeds  in  the  state  treasury  in  a  fund  to  be  known 
as,  the  "rural  credits  loan  fund." 

"Sec.  3.  Said  bonds  shall  be  issued  in  denominations  of  $25.00, 
$100.00,  $500.00,  and  $1,000.00,  and  shall  be  issued  in  series  of  $50,- 
000.00,  or  multiples  thereof,  drawn  to  mature  in  not  more  than  thirty- 
six  years.  They  shall  bear  interest  at  the  rate  of  four  per  cent  per 
annum  and  shall  be  exempt  from  all  taxes  levied  by  the  state  of  Ore- 
gon, or  any  of  its  subdivisions. 

"Sec.  4.  Said  state  land  board  is  authorized  and  directed  to  loan 
the  moneys  in  said  rural  credits  loan  fund  to  owners  of  farm  lands 
in  Oregon  upon  notes  secured  by  mortgages  or  deeds  of  trust  consti- 
tuting first  liens  on  such  farm  lands  in  amounts  which  shall  not  exceed 
fifty  per  cent  of  the  value  of  such  lands,  nor  $50.00  per  acre  on  such 
lands,  nor  less  than  $200.00  nor  more  than  $5,000.00  to  any  individual. 
If  pending  applications  shall  at  any  time  exceed  the  funds  available, 
preference  shall  be  given  to  loans  not  exceeding  $2,000.00  in  amount. 

"Sec.  5.  Such  loans  shall  not  be  made  except  to  owners  who  oper- 
ate and  occupy  the  lands  mortgaged,  and  shall  be  made  only  for  the 
following  purposes :  (a)  The  payment  for  lands  purchased ;  (b)  the 
purchase  of  livestock  and  other  equipment,  and  the  making  of  im- 
provements which,  in  the  judgment  of  said  board,  will  increase  the 
productivity  of  such  lands  or  add  to  their  value  as  a  farm  home  in  a 


1113 

degree  to  justify  such  expenditure;  and  (c)  for  the  satisfaction  of 
encumbrances  upon  such  lands,  which,  in  the  judgment  of  said  board, 
were  incurred  or  assumed  by  said  apphcant  for  the  aforesaid  purposes. 

"Sec.  ti.  Every  apphcant  for  a  farm  loan  shall  state  clearly  in  his 
application  the  purposes  for  which  such  loan  is  desired,  and  upon  its 
approval  by  the  board  this  statement  shall  be  deemed  a  part  of  the 
note  or  contract  under  which  the  loan  is  granted.  But  no  failure  to 
apply  such  funds  to  the  purposes  stated  in  such  application  or  enumer- 
ated herein  shall  invalidate  a  loan  when  once  made,  nor  shall  anything 
herein  contained  be  deemed  to  prevent  any  farm  owner  from  selling  or 
leasing  lands  subject  to  such  encumbrance;  but  if  he  shall  violate  his 
said  contract  by  ai)plying  the  moneys  borrowed  to  purjwses  other  than 
those  stated  in  his  application  or  enumerated  herein,  or  if  he  shall  lease 
such  lands  or  sell  them  to  any  person  not  fulfilling  the  conditions  and 
purposes  provided  for  herein,  said  board  is  authorized  and  directed  to 
re([uire  the  repayment  of  said  loan  upon  six  months  notice,  and  said 
note  or  contract  shall  contain  a  clause  providing  therefor. 

"Sec.  7.  Such  loans  shall^be  repaid  with  interest  accruing  in  semi- 
annual or  annual  instalments  on  the  amortization  plan,  such  instalments 
being  fixed  at  such  sums  as  will  cover  the  interest  rate  and  will 
li(|uitlate  the  debt  in  a  period  to  be  agreed  on  between  said  board  and 
the  applicant,  such  period  to  be  not  less  than  ten  nor  moie  than  thirty- 
six  years ;  but  any  debtor  may  licjuidate  any  part  or  all  of  his  indebted- 
ness in  anKumts  of  $50.00  or  multiples  thereof  upon  any  amortization 
payment  date. 

"Sec.  8.  The  rate  of  interest  on  loans  shall  be  5  per  cent  per 
annum,  provided  that  in  case  any  series  of  said  farm  credit  bonds  is 
sold  at  an  average  of  less  than  par,  the  board  may  charge  upon  such 
farm  loans  as  are  made  from  the  proceeds  of  the  series  so  st)ld  below 
par  a  rate  of  interest  in  excess  of  o  per  cent,  but  which  shall  not  exceed 
by  more  than  1  per  cent  the  rate  which  the  state  must  pay  for  the 
funds  actually  obtained  from  the  disposal  of  its  said  bonds.  The  board, 
however,  shall  require  each  ajiplicant  to  pay  an  initial  charge  of  1  per 
cent  of  the  loan  granted,  the  mininnmi  charge  to  be  $10.00  to  cover  the 
cost  of  appraisal  and  examination  of  title. 

"Sec.  1).  All  surplus  funds  accruing  from  the  operation  of  the 
system  of  rural  credits  herein  provided  for,  after  paying  interest  accru- 
ing on  tlie  aforesaid  bonds,  and  all  operating  and  other  expenses  aris- 
ing from  the  administration  of  said  system  of  rural  credits,  shall  be 
placed  in  the  state  treasury  and  become  a  part  of  a  fund  to  be  known 
as  the  'rural  credits  reserve  fund.'  Said  rural  credits  reserve  fund 
shall  be  loaned  on  farm  lands  in  the  manner  herein  provided  for  the 
rural  credits  loan  fund,  and  the  interest  accruing  from  loans  made 
from  said  rural  credits  reserve  fund  shall  be  added  to  it  and  become 
part  of  it.  The  said  rural  credits  reserve  fund  shall  be  irreducible  ex- 
cept that  it  may  be  drawn  upon  to  reimburse  the  state  for  loss  incurred 
in  the  administration  of  said  system  of  rural  credits. 

"Sec.  10.  The  legislative  assembly  shall  provide  in  such  detail  a3 
it  shall  deem  advisable  for  the  carrying  out  and  administering  of  the 


1114 

provisions  of  this  amendment,  and  shall  provide  adequate  safeguards 
against  the  use  of  such  loans  as  an  aid  to  the  purchasing  and  holding 
of  lands  for  purposes  of  speculation.  Such  safeguards  shall  include 
clear  definitions  of  the  terms  'operate'  and  'occupy'  used  herein.  In  the 
absence  of  such  legislation,  and  subject  to  the  same  after  its  enact- 
ment, the  state  land  board  shall  proceed  to  administer  said  system  of 
rural  credits  under  rules  and  regulations  provided  by  itself,  but  subject 
to  the  provisions  herein  contained. 

"Sec.  11.  The  provisions  of  the  constitution  and  laws  of  Oregon 
in  conflict  with  this  amendment  are  hereby  repealed  insofar  only  as 
they  conflict  herewith.  The  provisions  of  this  amendment  shall  be  self- 
executing,  and  shall  take  effect  and  be  in  operation  sixty  days  after 
their  approval  and  adoption  by  the  people  of  Oregon." 

A  number  of  states  that  have  no  specific  constitutional  provision 
for  rural  credit  systems,  have  authority  to  invest  state  funds  in  first 
mortgage  loans  on  farm  lands. 

The  constitution  of  Minnesota  as  amended  in  1916,  provides  that 
the  permanent  school  and  university  fund  of  the  state  may  be  invested 
in  "first  mortgage  loans  secured  upon  improved  and  cultivated  farm 
lands."  (Art.  8,  ^^.  8.)  Such  loans  may  not  exceed  30  per  cent  of 
the  actual  cash  value  of  the  land  mortgaged.  No  legislation  to  carry 
out  this  provision  has  been  attempted. 

In  Arizona  a  constitutional  provision  requiring  the  state  treasurer 
to  keep  certain  "moneys  invested  in  safe  interest-bearing  securities" 
(Art.  10,  Sec.  7)  has  likewise  left  the  way  open  for  loans,  and  in  1917 
the  Arizona  legislature  made  provision  for  the  investment  of  state 
funds  in  first  mortgages  on  farm  lands.  The  loans  are  made  under 
regulations  prescribed  by  the  governor,  secretary  of  state,  and  state 
treasurer,  and  the  amount  loaned  on  any  farm  may  not  exceed  one- 
half  of  the  actual  valuation. 

The  farm  loan  system  in  Oklahoma  is  closely  connected  with  the 
administration  of  state  and  school  lands.  Under  article  11,  section  6 
of  the  constitution,  provision  is  made  for  investing  permanent  common 
school  and  other  educational  funds  in  first  mortgages  upon  good  and 
improved  farm  lands.  Loans  are  limited  to  50  per  cent  of  the  reason- 
able value  of  the  lands  without  improvements.  In  1919  the  legislature 
made  provision  for  county  loan  boards,  and  further  prescribed  the 
conditions  upon  which  loans  could  be  authorized  on  first  mortgage 
security,  and  also  the  manner  of  procuring  second  mortgages  from  the 
home  loan  fund. 

Legislation  enacted  in  Montana  in  1915,  Chap.  28  and  in  1917, 
Chap.  184  (amended  in  1919,  chap.  174)  makes  pi-ovision  for  farm 
loans  on  improved  farm  land,  from  moneys  belonging  to  the  state 
permanent  common  school  funds  and  all  other  permanent  state, 
educational,  charitable,  and  penal  institution  funds. 

Applications  for  loans  on  farm  lands  from  the  state  funds  must 
be  made  to  the  secretary  of  the  state  board  of  land  commissioners, 
on  forms  approved  by  the  attorney-general,  and  it  is  the  duty  of  the 
of  the  board  of  land  commissioners  to  fill  such  applications  as  rapidly 


1115 

as  such  funds  are  available  and  in  the  order  in  which  approved  ab- 
stracts of  title  are  received.  Loans  are  to  be  secured  by  first  mort- 
gage, and  the  amount  of  each  loan  is  not  to  exceeil  two-lifths  of  the 
actual  cash  value  of  the  land.  All  mortjj^ages  given  to  secure  loans 
of  funds  on  farm  lands  must  be  made  in  the  name  of  the  state  as 
mortgat^ee.  The  interest  rate  is  six  per  cent  per  annum  payable  an- 
nually to  the  register  of  state  lands.  The  mortgages  run  for  periods 
of  not  less  than  three  nor  more  than  ten  years.  In  ihe  case  of  mort- 
gages running  for  ten  years  the  privilege  of  prepayment  is  given  after 
three  annual  interest  payments  have  been  made.  Examinations  and 
appraisals  are  made  under  the  direction  of  the  board  of  land  com- 
missioners. Expenses  incurred  in  making  examinations  and  ap- 
praising the  land  are  paid  out  of  the  several  income  funds  from  which 
the  loans  are  made,  but  the  expenses  of  perfecting  title  are  borne  by 
the  ai)plicant  for  the  loan. 

The  state  land  board  may  sell  mortgage  farm  loans  at  public 
auction  whenever  there  are  applications  on  file  for  loans  in  excess  of 
the  amount  of  funds  on  hand  for  investment.  None  of  the  mortgages, 
nor  the  notes  or  obligations  secured  thereby  may  be  sold  for  a  less 
amount  than  the  unpaid  principal  and  interest  accruing  up  to  the 
date  of  sale.  The  state  of  Montana  may  never  be  held  liable  for  the 
payment  of  any  portion  of  the  i>rincipal  or  interest  of  any  mortgages, 
notes,  or  obligations,  so  sold,  but  the  jmrchasers  nuist  look  to  the 
property  on  which  the  mortgages  are  given  and  to  the  makers  thereof 
for  the  payment  of  the  princii)al  and  interest.  Whenever  any  mortgages 
on  farm  lands,  together  with  the  notes  or  obligations  secured  thereby, 
are  sold  and  assigned  by  the  state  board  of  land  commissioners,  the 
purchaser  may.  in  writing.  ap|)oint  the  registrar  of  state  lands  as  an 
agent,  to  whom  the  payment  of  the  ])rincipal  and  the  interest  be- 
coming due  thereon  may  be'  paid,  and  it  then  becomes  the  duty  of  the 
register  to  receive  payment  of  such  i)rincii)al  and  interest  and  pay  the 
same  over  to  the  holders  or  owners  of  such  mortgages,  notes  and  obli- 
gations. All  moneys  received  from  the  sale  of  mortgages  and  notes, 
must  be  deposited  in  the  state  treasury  and  credited  to  the  particular 
fund  or  funds  from  which  the  imestmcnts  and  loans  were  originally 
made,  and  may  then  in  like  manner  be  reinvested. 

A  system  of  farm  loans  was  developed  in  Maine  under  chapter 
.30:i.  laws  of  l!»i:  as  amended  by  chapters  111  and  22'-\  laws  of  ]!>!!). 
Under  this  legislation  farm  loan  commissioners  are  authorized  to 
make  investments  in  approved  first  mortgages  on  agricultural  lands, 
from  funds  accruing  from  the  sale  or  lease  of  public  lands  of  the 
state.  Under  the  soldier  settlement  law  enacted  in  Maine  in  HMO 
(chap,  isit)  the  "reserve  land  fund"  is  made  available  for  carry- 
ing out  the  provisions  for  soldier  settlement  on  lands  of  the  state, 
and  further  |irovision  is  made  that  surplus  lands  may  be  oi)enefl  to 
other  settlers  when  not  required  for  homes  for  soldiers. 

Most  of  the  soldier  settlement  laws  recently  enacted  make  similar 
provisions  for  the  settlement  of  surplus  lands  by  others  than  soldiers, 
and  likewise  extend  their  other  benefits  to  citizens  generally  when  such 
benefits  are  available  in  excess  of  demands  for  soldiers.    As  these  laws 


1116 

quite  generally  loan  the  credit  of  the  state  to  prospective  soldier  settlers 
and  others  in  the  purchase  of  homes  and  farms,  it  will  readily  be  seen 
that  this  type  of  land  settlement  legislation  greatly  extends  the  entire 
field  of  rural  credit  in  the  acquisition  of  farms  by  means  of  loans  and 
advances  made  through  various  state  agencies.  Legislation  enacted 
in  1919,  that  is  typical  of  this  general  movement  may  be  found  in 
Arizona,  California,  Colorado,  Maine,  ]\Iissouri,  New  Mexico,  Oregon, 
South  Dakota,  Tennessee,  Utah,  Washington,  and  Wyoming.  This 
legislation  assumes  such  a  variety  of  forms  that  about  the  only  com- 
mon ground  found  for  all  these  widely  varying  laws  is  the  common 
purpose  of  extending  the  aid  of  the  state  in  the  various  plans  for  the 
settlement  of  soldiers  and  of  others  when  surplus  means  are  available. 
In  some  of  the  states  the  1919  legislation  is  amendatory  of  former 
laws  making  provision  for  land  settlement ;  in  such  cases  the  new 
legislation  generally  gives  soldiers  the  preference  in  settlement  plans 
and  extends  the  aid  of  the  state  in  more  substantial  forms  of  credit 
than  were  previously  available. 

A  proposed  amendment  to  the  Kansas  constitution  relating  to 
state  aid  in  the  purchase  of  farm  homes  will  be  submitted  to  the  people 
of  that  state  at  the  general  election  in  1920.  (Kansas  Laws  1919,  p. 
448.)  The  proposed-^mendment  reads:  "Art.  15,  Sec.  11.  To  en- 
courage the  purchase,  improvements  and  ownership  of  agricultural 
lands  and  the  occupancy  and  cultivation  thereof,  provision  may  be 
made  by  law  for  the  creation  and  maintenance  of  a  fund,  in  such  man- 
ner and  amount  as  the  legislature  may  determine,  to  be  used  in  the  pur- 
chase, improvement  and  sale  of  lands  for  agricultural  purposes.  The 
legislature  may  provide  reasonable  preferences  for  those  persons  who 
served  in  the  army  and  navy  of  the  United  States  in  the  World  War 
and  holding  an  honorable  discharge  therefrom." 

In  a  number  of  the  western  states,  the  state  constitution  imposes 
but  few  restrictions  on  the  business  activities  of  the  state  government ; 
and  frequently  wide  authority  is  granted  to  local  governments  to  en- 
gage in  business  enterprises.  This  condition'  of  the  fundamental  law 
leaves  a  wide  range  for  experimentation,  and  the  state  governments  in 
a  number  of  cases  have  developed  rural  credit  systems,  without  the 
necessity  of  having  the  constitution  rewritten  in  order  to  free  them- 
selves of  a  particular  limitation.  The  absence  of  constitutional  restric- 
tions may  also  explain  the  greater  number  of  farm  loan  systems  and 
cooperative  credit  associations  in  the  western  half  of  the  country. 
Where  economic  necessity  and  political  desire  unite  in  demanding  a 
law,  it  is  more  readily  obtainable  if  the  constitution  does  not  embody 
some  particularized  limitation  which  becomes  obstructive  in  the  course 
of  the  progress  of  the  state. 


Foreign  systems.  The  main  features  of  rural  credit  s^^stems 
of  different  foreign  countries  were  investigated  by  the  commission  sent 
abroad  by  the  government  of  the  United  States  to  study  and  report 
upon  rural  credit  legislation  in  1913.     The  vast  fund  of  valuable  in- 


1117 

formation  collected  by  this  commission  became  the  basis  of  the  federal 
farm  loan  act.^ 

The  federal  act  therefore  reflects  the  farm  loan  experience  of  the 
civilized  countries  of  the  world,  as  the  substance  of  the  foreij^n  law 
was  digested  and  the  portions  deemed  most  practicable  and  applicable 
to  conditions  in  this  country  were  formulated  into  the  present  federal 
farm  loan  system. 

»U.   S.   Senate  Documents  Kos.   21i.   2G1.  and  380.   Sixty-tMrd  Congress. 


1118 


V.  SYSTEMS  BASED  ON  SECOND  MORTGAGES. 


A  system  based  on  second  mortgages  has  been  proposed  in  a  num- 
ber of  states  in  order  to  supplement  the  first  mortgage  system  provided 
by  the  federal  farm  loan  act.  The  objections  most  frequently  urged 
against  the  federal  farm  loan  system  are  that  it  makes  no  provisions 
for  second  mortgages  and  that  the  rate  of  50  per  cent  loaned  on  the 
land  and  20  per  cent  loaned  on  the  improvements  is  inadequate  to  meet 
the  needs  of  many  farmers.  It  is  further  urged  that  where  land  values 
are  high  and  are  settled,  amounts  larger  than  $10,000  could  safely  be 
loaned,  without  undue  risk  to  any  interest  involved.  It  has  accordingly 
been  urged  that  state  systems  should  be  limited  to  second  mortgages  so 
as  to  supplement  the  federal  farm  loan  system,  instead  of  merely 
duplicating  its  work. 

The  federal  systenfTTas  been  developed  on  the  theory  that  the 
farm  loan  bonds  must  have  so  safe  a  basis  of  security  back  of  them 
that  there  can  be  no  question  as  to  their  value  or  stability,  and  so  be 
readily  sold  throughout  the  country.  On  the  other  hand,  bonds  issued 
on  second  mortgages  on  lands  within  the  limits  of  any  one  State  would 
have  adequate  security  where  land  values  are  high  and  conditions 
settled,  as  they  are  found  in  the  rich  farming  lands  of  Illinois. 

A  bill  which  was  considered  by  the  JMinnesota  legislature  in  1919, 
but  was  not  enacted  into  law,  made  provisions  for  second  mortgage 
loans  on  Minnesota  farms.  The  bill  authorized  the  issuance  of  certifi- 
cates of  indebtedness  of  the  state  amounting  to  $1,000,000.  The  money 
so  raised  was  to  be  used  in  making  second  mortgage  loans  on  farms. 
The  total  percentage  of  loans  by  first  and  second  mortgages  combined 
was  limited  to  75  per  cent  of  the  value  of  the  land  and  30  per  cent  of 
the  value  of  the  permanent  improvements. 

A  number  of  agricultural  experts  have  pointed  out  that  the  up- 
ward limit  for  mortgage  loans  to  any  one  person  could  readily  be 
raised  from  $10,000  to  $20,000  through  the  addition  of  state  second- 
mortgage  loans,  to  the  amount  set  for  federal  first  mortgage  loans ;  and 
that  a  limit  thus  increased  would  be  advantageous  in  states  where  land 
values  are  as  high  and  as  stable  as  they  are  in  Illinois.  Advocates  of 
this  plan  have  further  estimated  that  the  percentage  of  the  loan  coiild 
in  this  manner  be  increased  from  50  per  cent  of  the  value  of  the  land 
to  60  or  even  80  per  cent.  While  it  is  admitted  that  second  mortgage 
land  bonds  could  not  be  as  readily  sold  throughout  the  entire  country 
as  are  the  federal  first  mortgage  bonds,  the  proponents  of  this  plan 
urge  that  second  mortgage  bonds  on  Illinois  farms  would  find  a  ready 
sale  wherever  the  high  productive  value  of  Illinois  land  is  known. 


1119 


VI.  SYSTEMS  FOR  SHORT-TIME  CREDITS. 


hi  addition  to  the  loii^  time  loans  secured  by  niortgaf^es  on  lands 
antl  improvements,  the  farmer  is  often  in  need  of  short-time  credits  to 
supply  him  with  workint:^  ca])ital  or  to  provide  for  unforseen  emer- 
gencies in  the  operation  of  his  business.  The  personal  credit  unions 
which  have  operated  in  New^  Zealand  and  in  Denmark  have  particularly 
aided  in  developing  the  agricultural  resources  of  those  countries.  A 
system  of  short-time  credits  which  would  utilize  the  personal  credit 
of  farmers  would  be  an  undoubted  aid  in  a  community  lacking  a 
sufificient  number  of  local  banks  to  look  after  such  local  needs. 

In  Illinois  the  local  banks  throughout  the  state  seem  to  be  meeting 
the  problem  of  short-time  credits  for  agriculture  in  an  adequate  man- 
ner, and  accordingly,  the  need  for  such  personal  credit  unions  does  not 
seem  to  be  as  pressing  as  it  is  in  certain  communities  not  so  adequately 
served. 

A  considerable  number  of  private  cooperative  credit  associations 
have  been  organized  in  the  United  States,  but  they  have  experienced 
difficulty  in  winning  the  confidence  of  borrowers  or  investors  where 
they  have  been  operated  without  any  form  of  state  supervision^  At 
the  present  time  the  short  time  credits  supplied  by  local  banks  through- 
out the  state  seem  to  be  meeting  the  needs  of  farmers  in  this  direction. 

Cooperative  credit  associations  under  state  supervision  have  played 
an  important  role  in  the  Australian  commonwealth.  Within  recent 
years  a  number  of  states  in  this  country  have  made  provision  for  such 
associations.  A  law  enacted  in  Nebraska  in  1910  (ch.  198)  is  typical 
of  legislation  of  this  sort:  the  associations  arc  placed  under  the  super- 
vision of  the  State  Banking  Board  and  are  empowered  to  make  loans 
to  members.  In  order  further  to  safeguard  their  funds,  they  are  em- 
powered to  invest  such  funds  as  may  not  be  required  for  loans  to  mem- 
bers or  for  immediate  use.  in  bonds  of  federal,  state,  local  and  munic- 
ipal governments,  in  bonds  issued  under  the  federal  farm  loan  act,  or 
in  other  securities  ai)j)roved  by  the  State  Banking  Board. 


:i8o 


VII.  CONCLUSIONS. 


The  problems  before  the  constitutional  convention  with  re- 
spect to  this  matter  will,  of  course  be  as  to  whether  the  consti- 
tution shall  be  so  changed  as  to  authorize  a  state  system  of  rural 
credits,  and  also  as  to  whether  anything  shall  be  done  to  permit  further 
action  with  respect  to  farm  tenancy.  By  Article  XI,  Section  5  of  the 
constitution,  the  state  is  now  expressly  prohibited  from  engaging  in  the 
banking  business  in  any  manner ;  and  by  Article  IV,  Section  20,  it  is 
forbidden  to  loan  its  credit  to  any  corporation,  association  or  indiv- 
idual. The  problem  of  farm  loans,  therefore,  is  necessarily  a  consti- 
tutional problem,  and  if  the  state  is  to  be  authorized  to  undertake  such 
loans,  these  constitutional  provisions  must  be  changed.  The  present 
language  of  the  constitution  with  respect  to  taxation  also  clearly  pro- 
hibits the  imposition  of  gradviated  taxes  on  large  land  holdings. 

If  these  matters  are  to  be  dealt  with,  some  constitutional  change 
is  therefore  necessary,  and  this  constitutional  change  may  be  ac- 
complished either  by  omitting  present  restrictions,  or  by  placing  de- 
tailed provisions  in  the  constitution  with  respect  to  the  matters  sought 
to  be  accomplished.  It  is  hardly  likely  that  all  provisions  with  respect 
to  banking  and  with  respect  to  taxation  will  be  omitted  from  the  consti- 
tution. The  authorization  of  new  activities  here  dealt  with  may  be  ac- 
complished merely  by  rephrasing  the  present  constitutional  provisions. 
The  problems  of  farm  tenancy  and  farm  loans  are  relatively  new  in 
this  country  and  it  is  highly  unwise  to  embody  into  a  constitution  de- 
tailed provisions,  which  may  soon  need  change  in  order  to  meet  chang- 
ing needs.  The  Oregon  constitutional  amendment  quoted  in  full  earlier 
in  this  bulletin  indicates  the  type  of  constitutional  provisions  that 
should  be  avoided. 


1121 


APPENDIX— REFERENCES. 


Carver,  T.  N.  Economic  Si^iificance  of  Changes  in  the  Rural  Pop- 
ulation. Annals  of  the  American  Academy  of  Political  and  Social 
Science,  Philadelphia,  XL,  21-25,  March,  1912. 

Coulter,  J.  L.  Changes  in  Land  Values,  Farms,  Tenants  and  Owners 
since  190U.  American  Statistical  Association  Publications,  Boston. 
XII,  472-475,  iMarch,  1911. 

Fairlie,  John  A.  Needed  Tax  Reforms  in  Illinois.  Proceedings  of  the 
National  Tax  Association,  1913. 

Haig,  Robert  M.  A  History  of  the  General  Property  Tax  in  Illinois. 
University  of  Illinois  Studies  in  the  Social  Sciences,  Vol.  Ill,  Nos. 
1  and  2.     (March-June,  1914.) 

Hibbard,  B.  H.  Tenancy  in  the  North  Central  States.  Quarterly 
Journal  of  Economics,  Harvard  University.  XXV,  710-730,  Aug- 
ust, 1911. 

Hibbard,  B.  H.  The  Decline  in  Rural  Population.  American  Stat- 
istical Association  Publications,  Boston.  XIII,  Whole  No.  129, 
85-95,  March,  1912. 

Holmes,  George  K.  The  Sources  of  Rural  Credit  and  the  Extent  of 
Rural  Indebtedness.  Bulletin  of  Social  and  Economic  Intelligence, 
International  Institute  of  Agriculture,  Rome,  April  and  May,  1913. 

Illinois.  Agriculture,  Annual  Reports  and  Year  Books  of  the  Depart- 
ment of,  (Between  ]s(j2  and  18.S.S  the  agricultural  reports  were 
printed  as  reports  of  the  Commissioner  of  Agriculture;  since  1889, 
as  reports  of  the  Secretary  of  Agriculture.  The  Year  Books  have 
been  issued  since  1894.) 

Kinley,  David.  The  Movement  of  Population  from  the  Country  to 
the  City.  Cyclopedia  of  .American  Agriculture,  New  York  and 
London,  1909,  IV,  113-119. 

Morman,  James  B.  The  Principles  of  Rural  Credits.  Rural  Science 
Series,  edited  by  L.  H.  Bailey,  New  York,  1919. 

Stewart,  C.  L.  An  Analysis  of  Rural  Banking  Conditions  in  Illinois, 
Chicago,  Illinois  Bankers  Association,  1914. 

Stewart,  C.  L.  I^nd  Tenure  in  the  United  States  with  Special  Ref- 
erence to  Illinois.  University  of  Illinois  Studies  in  the  Social 
Sciences.     Vol.  V,  No.  3,  September,  1916. 

Taylor,  H.  C.  Landownership  and  Tenancy.  Cyclopedia  of  American 
Agriculture,  New  York  and  London,  1909,  IV,  174-185. 


1122 

United  States.  Census  Reports,  United  States  Census  Bureau,  Volume 
on  Agriculture,  1880,  1890,  1900  and  1910 ;  Farms  and  Homes,  1890 ; 
and  bulletins  of  the  Thirteenth  Census  on  Agriculture.  Washington, 
Government  Printing  Office. 

United    States,    Treasury    Department,  Federal  Farm  Loan  Bureau; 

Circular  No.  1.  National  Farm  Loan  Associations;  Organization, 
Management,  Powers,  and  Limitations.  Issued  by  the  Federal 
Farm  Loan  Board,  March  20,  1917.    Washington,  1917. 

Circular  No.  2.  How  Farmers  May  Form  a  National  Farm  Loan 
Association.  Issued  by  the  Federal  Farm  Loan  Board,  August, 
1919.    Washington,  1919. 

Circular  No.  3.  (Revised)  The  Improved  Farm  Mortgage.  A 
story  illustrating  the  practical  application  of  the  Federal  Farm 
Loan  Act.  Issued  by  the  Federal  Farm  Loan  Board,  January  2, 
1919,  Washington,  1919. 

Circular  No.  4.  (Revised)  The  Federal  Farm  Loan  Act,  with 
Amendment  approved  January  18,  1918.  Issued  by  the  Fed- 
eral Farm  Loan  Board,  August,  1919,  Washington,  1919. 

Circular  No.  5.  The  Farm  Loan  Primer.  With  definitions,  rulings, 
and  regulations  of  the  Federal  Farm  Loan  Board  to  June  1,  1917. 
Here  you  will  find  in  hnei  form  answers  to  the  questions  most 
frequently  asked  about  the  Federal  Farm  Loan  Act.  Issued  by 
the  Federal  Farm  Loan  Board.  Fifth  edition:  July  23,  1918. 
Washington,  1918. 

Circular  No.  7.  (Revised)  Killing  off  Mortgages.  A  description 
of  the  methods  of  amortization  and  their  benefits  to  borrowers. 
Issued  by  the  Federal  Farm  Loan  Board.  July,  1919.  Wash- 
ington, 1919. 

Circular  No.  10.     Rulings   and   Regulations   of  the   Federal   Farm 
Loan  Board  to  June  30,  1919.     In  Matters  Pertaining  to  the  Fed- 
eral Farm  Loan  Act.     Issued  by  the  Federal  Farm  Loan  Bank. 
July,  1919.     Washington,  1919. 
Warren,  G.  F.    Crop  Yields  and  Prices,  and  our  Future  Food  Supply. 

Cornell  University  Agricultural  Experiment  Station.    January,  1914. 


1123 


INDEX. 


AUSICNTEE    LANDLORDISM,    1087 

AMORTIZATION 
of   loans.    1103 

ARIZONA 

fanii    loan    system.    1114 

HANKS 
I>rohibitioii    upon    [riMieral    asseniblv    with    re- 
spect to,   1083,    1120 

t  ALIFORNLA 

eiicourugenient    o(    small    lioliIiii;;s     in,     1087 

CO-dl-KRATIVE      CREDIT      ASSOCIATIONS, 
1119  ,      _M 

CREDIT    UNIONS 

in  New  Zealand  and   Derimark,  1119 

DENMARK 

credit  unions,   1119 

EXTINCTION    OF    FARM    I.OANS,    1103  1106 

FARM    LOAN   ASSOCIATIONS,    I(;90 

FARM  LOAN  BONDS 
as    investments,    1100,    1106 

FARM    LOANS 
actually  made.   1093,   1095.   1102 
loiiditions   of   loans    undrr    (.■.lirJ    liu,    1096 

FARM    TENANCY,    1085 

FEDERAL   FARM    LOAN   SYSTEM,    1089 

FEDERAL    LAND    BANKS,    1090,    1094-1100 

FIRST    MORTGAGE     SYSTEMS.     1084,      1089, 

1110  am 

ILLINOIS 
fann    tenancy    in,    1085 

INVESTMENTS 
farm   loan    bonds   ns,    1100.    1106 
investments   in   land,    1087 

JOINT    STOCK    LAND    HANKS,    1100  1103 

KANSAS 

proposal    for    farm    loans,    1118 
LAND    BANKS.    FEDERAL,    1094 


LAND    SETTLEMENT    t  ( iMMISSIONS,    1086 

MAINE 
farm  loans,  1115 

MINNESOTA 
farm    loan    system,    1114 
proposed    second    mortgasc    .system,    1118 

MONTANA 
farm  loan  system,  1114 

MORTGAGE    SYSTEMS 

Si-c   First   mortgage   systems;    Second    Mort- 
gage   systems 

NATIONAL      FARM      LOAN      ASSOCIATIONS, 
1090-1094 

NEBRASKA 

legislation     for    co-operative     credit     associa- 
tions,   1119 

NEW    ZEALAND 
creilit    unions,    1119 
farm   tenancy,    1087 

NORTH    DAKOTA 
fami  loan  system,  1111 

OKLAHOMA 
fann   loan   system,    1114 

((RECON 

fann    loan    system,    1112 

text    of    farm    loan    amendment,    1112 

REFERENCES,  1121 

SECOND   MORTCAGE   SYSTEMS,    1084.   1118 

SIIORT-TIME    CREDITS,    1110 

SOLDIERS 
settlement  of,   1115,   1116 

SOUTH   DAKOTA 
farm    loan   system,    1110 

TAXATION 
requirement    of    uniformity,    1083,    1120 
proposals  of,   1986 

TENANCY 

farm,   1085 


x 


LOAN  DEPT. 


•>.<  •  i 


LD2lA-60w-6;69 
(J9096sl0)476-A-3. 


Caylord  Bro«. 

Mahara 
Syraouaa,  N  .  Y  . 


YD  V  -^^^3 


■^^ 


.J"" 


'^:87l-^': 


UNIVERSITY  OF  CAUFORNIA  LIBRARY 


